• Chris Stein, CFP®

Including Additional Years Of Work For Social Security

A reader wonders if his brother, who didn't initially pay into Social Security, will be allowed to include additional years of work following Full Retirement Age in his Social Security retirement benefit.


"I have a Social Security benefit calculation question. My brother, who will turn 66 this year, has a Full Retirement Age (FRA) of 66 and 6 months. He has fewer than 35 years of Social Security income as he was a pastor for most of his career and had opted out of paying in using the religious exemption. He changed careers and has paid into Social Security with a different job for 15 years. He plans to continue working until age 70 and collect his retirement benefit then. Will the Social Security Administration include his additional years of work beyond his FRA to replace some of his "zero years" and increase his final Social Security monthly benefit?"


Excellent question – because it can apply to everyone. The short answer is "yes," but let me expand because I think it's important to understand the nuances.


Social Security never rejects years of earnings for their consideration. Instead, they look at your full earnings record, starting with the year after you were born. (The only year they ignore is the year you were born.)


In this particular case, if your brother's Full Retirement Age (FRA) is at 66 years and 6 months, I estimate he was born in 1957. So Social Security is looking at every year from 1958 until the present. For every year that earnings are reported, they add them to your earnings record. This can occur after your FRA is reached and even after you've claimed your Social Security retirement benefit. So, even if your brother claims his benefit at 70, Social Security will consider his earnings if he continues to earn money.


Late earners miss out on one thing: after age 60, Social Security no longer indexes your earnings for inflation. Instead, those earnings will go in at face value without the adjustments that would have happened to earnings before turning age 60. But earnings are included, not ignored.


Because they will give you credit in your earnings record for those earnings, Social Security taxes will be withheld.


That leads some people who claim Social Security some time in their 60s to wonder, "Why should I bother to work?" or "It's unfair that I still get Social Security taxes withheld."


Here's why working later in life is worthwhile: remember that Social Security will consider your best 35 years of inflation-adjusted wages to calculate your average indexed monthly earnings figure. (That's the stepping stone to getting to your benefit calculation.) So if in your 60s, 70s or 80s, you pull a good earnings year that's bigger than one of the earnings figures that went into those top 35, you'll see a benefit increase. The new earnings will replace a year of lower earnings in your top 35.


For many people, if they have a slightly better year -- say they're replacing a year where they earn $32,000 with $35,000 – well, that's not going to change the average of their top 35 very much at all. But your brother has a bunch of zeroes within his 35 years. So, when you replace a zero with $35,000, $50,000 or whatever number, that can substantially impact the benefit calculation.


So, to the extent that he's going to continue to work and create earnings that will replace the zeroes currently in the top 35 in his earnings record, that will improve his Social Security benefit.


Remember that work done after you reach the Social Security retirement age (which starts at 62) will never hurt you. Social Security will never say, "Oh, we're including this, and it has pulled down your benefit somehow." Only changes that increase your benefit are considered.


I have heard a concern that working part-time later in life can undermine a solid Social Security earnings record, but that's not true. The concern may come from a misunderstanding of how Social Security works. For example, some may think Social Security looks only at your last ten years of work. So, if you start feeding your record with part-time earnings as you're semi-retired, it will pull down the average.


But Social Security is looking at your top 35 earnings years, no matter when they occurred – back to the year after you were born, even if it's unlikely anyone makes substantial money in the first year or two of life. Technically, they look back just in case.


In short, no earnings after you turn 62 will reduce your benefit. On the contrary, they can only help your benefit.


So, in your brother's case, he can work if he wants to, and those earnings will feed into his earnings record and replace existing zeroes within his top 35 years. And Social Security will consider them even after age 70.

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