Hi,

I have a question regarding working after reaching FRA while collecting social security benefits regarding whether benefits increase due to higher current earnings than in the 35 best years used to calculate benefits in 2020.

I now have total of 45 years of earnings because I still work part-time. I started collecting social security in 2020 at the age of 67+ (my FRA was 66 yrs. born 1953), and my 35 best earning years were used to determine my benefits. In the last 2 years, I have earned part time more each year than my bottom years of the 35 best earnings used at the time I signed up for social security. Shouldn't my earnings from 2020 and 2021 be used to recalculate my benefits and replace the lowest 2 earnings calculated originally, and therefore increase my benefits since social security takes the best 35 years?

I visited the local social security office 2 weeks ago to ask this question, and I was told unequivocally that social security indeed looks at the best 35 years, but they use only 10 best earnings out of the best 35 years to calculate the benefits. I was told they would not include my last 2 years part-time earnings which are higher than the lowest earnings in 1985 and 1986 because they are lower than my 10 best earnings of the best 35 years.

I have read numerous articles on social security and IRS websites as well as by prestigious economists (including your book Get What’s Yours: The Revised Secretes of Maxing out Your Social Security), and reputable financial institutions (e.g., Charles Schwab). I have never seen anywhere any mention of the 10 best earnings out of the 35 best years being used in the calculations. SS website says: “After we determine the number of years, we choose those years with the highest indexed earnings, sum such indexed earnings, and divide the total amount by the total number of months in those years.” However, not being transparent, they do not indicate how many of “the highest earnings” they use to determine benefits.

My questions are as follows:

1. Should social security recalculate my benefits every year I work now that may lead to higher benefits because of my higher current earnings now than originally determined in 2020?

2. Or will my benefits not be recalculated because social security uses the best 10 earnings out of 35 best years to calculate benefits which are higher that current earnings?

Thank you for your response in advance.
Joanna

Hi Joanna. I need to start out by saying that if you were told by a Social Security employee that Social Security retirement benefits are calculated based on a person's highest 10 years of earnings, then that employee is woefully ill-informed and should not be in a position where they can spread misinformation to the public. You would be doing the public in your area a favor by reporting the employee with whom you spoke to the management of that office.

The fact is that Social Security retirement benefits are calculated based on the highest 35 years of a person's earnings, but it's the highest 35 wage-indexed earnings years that are used (https://www.ssa.gov/pubs/EN-05-10070.pdf). Wage-indexing converts a person's historical annual earnings to amounts more reflective of current day dollars. So, in order to increase your benefit rate you would need to earn more than the lowest of your 35 highest wage-indexed earnings years, not the lowest of your actual earnings years.

Since you were born in 1953, in order to determine if your recent earnings are high enough to increase your benefit rate you would first need to convert your actual yearly earnings in years prior to 2013 to indexed earnings. You can use the chart in the following section of Social Security's operations manual to do the calculations: https://secure.ssa.gov/apps10/poms.nsf/lnx/0300605940. Then, you need to identify your 35 highest wage indexed earnings years. If your recent earnings were higher than any of your previous highest 35 years of wage-indexed earnings, then your benefit rate should increase.

Social Security automatically recomputes benefits to include higher years of earnings, but those recomputations are generally not done until the fall of the year following the year of the higher earnings. So, for example, if your earnings in 2021 were higher than one of your previous highest 35 years of wage-indexed earnings, then you could probably expect to actually receive the increase in the latter part of 2022. Any such increase would be retroactive to your payment for January 2022, though, so Social Security would make up any back pay due after they process the recomputation.

Best, Jerry