Why you may want to file for Social Security – and keep working
Social Security is an important source of income for millions of seniors, so it pays to get the most money possible out of those benefits.
For some people, that means holding off on Social Security past full retirement age (FRA), which is 66, 67 or somewhere in between, to accrue delayed retirement credits that boost benefits by 8 percent annually. You're eligible for those credits until you turn 70, so if you're looking at an FRA of 67, you have the potential to increase your benefits by 24 percent.
But you don't actually need to hold off on claiming benefits to snag an increase. Believe it or not, there's one thing you can do to boost your benefits after you've already filed for them: keep working.
Your earnings matter
Your Social Security benefits are calculated based on your 35 highest years of earnings.
Protect your assets: Best high-yield savings accounts of 2023
Most people, however, earn less early in their careers than later, and while that's partly due to the fact that the premium for entry-level workers isn't what it is for experienced employees, it's also because inflation causes wages to naturally rise over time.
As such, those 35 highest working years used to determine your Social Security benefits are actually indexed for inflation so that the money you earned in, say, 1980 is adjusted to reflect what your salary back then would look like in today's dollars.
Planning to claim Social Security at 65? You may want to rethink that.
When you continue working later in life, you're generally able to replace a lower-earning year with a higher-earning year, thereby boosting your benefits as a result. But you can employ this strategy even if you decide not to wait as long as possible (age 70) to claim Social Security.
Let's imagine you decide to file for benefits at your FRA of 67, only you continue to work at that time. First, once you reach FRA, the Social Security Administration (SSA) will allow you to earn as much money as you'd like without withholding any amount of the benefit payments you're entitled to. Second, if your continued earnings are such that they raise your benefit amount, the SSA will adjust your benefits to reflect that change.
For example, if you file for Social Security at your FRA of 67 in 2019 but work during 2019 and earn enough to replace a year of lower earnings, the SSA will recalculate your benefits in December 2020 and add on whatever additional amount you're entitled to. Furthermore, your increase will be retroactive to January 2020.
COLA increase:Why there may not be one in 2020
Why work and collect Social Security simultaneously?
Since Social Security benefits automatically grow 8 percent for each year they're delayed past FRA, you might wonder why someone would choose to file at FRA if the option to collect a paycheck still exists. After all, you generally stand to boost your benefits far more substantially by snagging that 8 percent bump than by replacing a year, or even several years, of lower earnings with higher income.
The answer, however, might boil down to simply wanting those benefits earlier in life. Let's say the earnings from your job are such that you're able to easily pay your bills, but they're not enough to fund two exotic vacations a year. If you want to enjoy those vacations while you're relatively young, you might file for benefits to get that money, use it as you please, and continue working all the while.
Delaying Social Security past FRA is a good way to increase your benefits for life. But if that's not an option you care to pursue, working later in life can achieve the same goal, albeit to a lesser extent.
What you need to know:This is how much claiming Social Security early costs you
The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
Offer from the Motley Fool: The $16,728 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.