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Working After You Retire

Can additional income increase Social Security benefits after you start collecting?

Q. I retired at 62 and started taking Social Security but still work at another job. I earn $9,000 a year and pay into Social Security. Shouldn't I receive a higher benefit based on each additional year I work?

A. Not necessarily. Here's why.

Your current benefit is based on your lifetime earnings. To calculate it, Social Security keeps a record year-to-year of how much you make. You'll pay Social Security taxes only on wages up to a certain ceiling, $110,100 in 2012 and $113,700 in 2013. Anything you make above those levels won't count in the computation of your benefit amount.

When you apply for benefits, computers at the agency adjust or "index" your wage history to account for changes in average wages since the years that you received the earnings. The computers focus on your highest-earning 35 years. If you didn't work a full 35 years, zeroes will be entered for those missing years.

The next step is to apply a formula to those indexed earnings to arrive at your full benefit, the sum you're eligible for at your full retirement age. If you take benefits before that age, as you've done, they are reduced.

While you continue to work, Social Security will monitor your earnings, and if any of your current-year earnings are higher than one of the 35 index-adjusted years, it will give you credit for the higher amount. That, in turn, could lead to an increase in your retirement benefits.

Stan Hinden, a former columnist for The Washington Post, wrote How to Retire Happy: The 12 Most Important Decisions You Must Make Before You Retire. Have a question for the Social Security Mailbox? Check out the archive. If you don't find your answer there, send a query.

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AARP President Rob Romasco discusses Social Security.

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