Q. I am a senior who is still working to increase my Social Security benefits. After age 70, do you still get any increases if you’re still paying into the system?
— Still working
A. Many seniors choose to work later in life, and it will have an impact on their Social Security benefits.
Let’s start with some background.
You are required to pay FICA (Federal Insurance Contribution Act) taxes, commonly called Social Security and Medicare taxes, as long as you have income that is covered by Social Security, said Deva Panambur, a fee-only planner with Sarsi, LLC in West New York and an adjunct professor of personal finance at Montclair State University. Salary from certain state and federal government jobs are not covered, he said.
The Social Security tax is levied on your earnings up to a maximum amount. For 2021, that maximum amount is $142,800.
“Your Social Security benefit at full retirement age is calculated using your highest 35 years of earnings on which Social Security tax has been levied, indexed for inflation,” he said. “The maximum amount of Social Security benefit is capped because of the maximum amount of income on which Social Security tax is levied.”
If you continue to work while collecting Social Security at any age, your benefit could increase if your earnings are one of the 35 highest years you have earned, Panambur said. The increased benefit is automatically calculated by the Social Security Administration and is paid to you the December of the following year, he said.
Working while collecting Social Security benefits has other complexities you should consider.
“If you are younger than full retirement age (FRA) and you earn more than certain amounts, then your benefit will be reduced,” he said. “For example, for 2021, if you are below full retirement age for the whole year, your benefit will be reduced $1 for every $2 you earn over $18,960.”
However, he said, the benefit is not actually lost because when you reach full retirement age, your benefit will increase to reflect the amount withheld.
“Additionally, if you have substantial income — any and all income that must be reported on your tax return — other than your Social Security income, up to 85% of your Social Security income will be taxable,” he said.