Ask a Social Security Question, Get an Answer ASAP!
I'm Doug, and I'm sorry to hear of the confusion. My goal is to provide you with excellent service today. Please understand that there is no simple manner in which that your question can be answered. You need to have an understanding about how social security determines your benefits in the first place before you can attempt to determine how much more of an increase there will be if you continue to work while receiving your benefits. I will explain it---but bear with the complexity of the answer. FIRST, HOW YOUR BENEFIT IS DETERMINED AS A WHOLE:
How a person's benefit is determined is really quite complicated, and the math involved is tedious and can be difficult to follow for some, but I will be happy to try and explain it to you.
Your benefit is based on the income that you earned over the highest 35 years of your working life. If you didn’t work 35 years, then some years will be considered as zeros in the equation. First social security takes all income that you earned in a lifetime and for which you paid social security taxes. They then apply a multiplication factor to it according to what year you earned it in, to make up for the fact that earning $5,000 in 1960 was worth more than $5,000 today---so they multiply the 1060 income by a given number. They then add all of those numbers (years of income after the multiplication has been done) up and divide it, first by 35 (years), and again by 12 (months), to get an average monthly income.
Once your average monthly income over the 35 year period is determined, and then the benefit you will be paid is determined by adding 90% of the first $767.00, 32% of the remainder up to $4,624.00 a month, and then finally, 15% of all amounts over $4,624.00.
The determination of how much a person’s social security retirement benefit will be involves some complex calculations, and contrary to what might be expected, the benefit is not evenly awarded based on your lifetime income, but instead is heavily weighted on the first $322,140 that you earn in your life.
Your social security retirement benefit is based on an average of your earnings over the highest 35 years of your lifetime. If you earn income in less than 35 years, that income is still divided based on the 35 year factor.
To complicate things even more, social security then applies a multiplying factor to each year of income to try and make it relevant to today’s dollar value. In other words, earning $10,000 in 1960 is the equivalent of earning $107,300 in 2013. Here is a table that you can actually use to determine the adjusted average monthly income that social security will use to determine your benefit amount: http://www.socialsecurity.gov/pubs/EN-05-10070.pdf
Once all of your adjusted monthly income (top 35 years at most) is determined and then added up, social security will divide that amount by 35 (years), and then again by 12 (months), to get an average monthly income for you. It is from that average monthly income that your benefit is determined.
Based on your average monthly income, social security will pay as your retirement benefit at full retirement age 90% of the first $767, 32% of the remainder up to $4,624 a month. Then finally, if your monthly income average is greater than $4,624, they will add 15% of all amounts over that.
As can be seen, while social security will pay 90% of the first $767 of your average monthly income as a benefit to you, that percentage of payment drops drastically to only 32% after the first $767 of average monthly income.
THE ANSWER TO YOUR QUESTION:
If you have already worked 35 years for social security, and your income each year you will be receiving while collecting benefits is NOT higher than any of the other 35 years---then there will be no benefit increase.
It is critical to determine your weighted lifetime income to now. If it was less than $322,140, then your increase will be the equivalent of 2/10ths of 1% of your income that year. In other words, 10,000 in income would increase your monthly take by about $20 per month.
However, if like many people, you earned somewhat less than $2, 250,000 during your life, then by adding another year of income, for every $10,000 your benefit would only rise less than 1/10th of 1% per month.
Applied to the typical social security recipient receiving $1500 a month---in the average circumstances---where you earned more than $322,000 but less than $2,250,000 in your life---for every $10,000 you earn in year 31 when you are retired---equals only about an additional $7.50 per month.
I apologize for the complexity of the answer---but it was the only way I could explain it. The social security calculation is incredibly complex to begin with, and there is no realistic way to simplify it to answer such a specific question as you asked.
Thank you for the complete answer--I am considering retiring next month so even if I postponed my retirement 3- 4 months it would really have very little impact on any increase in the last paragraph of your answer?
Yes, absolutely. If you are typical, in that you have earned somewhere between $322,140 and $2,250,000 in your lifetime, but you haven't worked quite 25 years total, and you work 4 additional months and earn say $15,000 in that time, it will only effect your benefit level by about $11 per month. If you have worked over 35 years already, the increase could be as little dollar or two to nothing at all.
What I am suggesting is that in the grand scheme of it all, choosing to continue to work those last few months should not be based on how it might affect your social security retirement benefit.
Please keep in mind that until you rate me highly for my service, I will not be credited with helping you. Thanks again.Have a great day,Doug