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If you’re a retiree on Social Security, you probably have Oct. 13 circled on your calendar. That’s the day when Social Security beneficiaries will finally learn their cost-of-living-adjustment (COLA) for 2023, which is on track to be 8.7% as of the August consumer price index (CPI-W) reading, according to the Senior Citizens League.
After a year in which seniors have seen prices rise on everything from rent to gas to food to healthcare and utilities, 2023’s Social Security COLA, which will be the highest in 40 years, will offer at least some relief to retirees on fixed incomes. Though the COLA is determined by inflation numbers over the last year, it won’t appear in Social Security checks until January. That means if inflation remains elevated into 2023, it might not be enough to cover higher prices next year.
If you’re looking to increase your Social Security payments in the near term, you’ll have to wait for the COLA. But if you’re after a long-term increase, there are some other options at your disposal, especially if you’re willing to stay in the workforce.
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Get your 35 years in
Continuing to work might not sound like the most appealing option to retirees, but if you’re already collecting Social Security, a good way to increase your payments is by staying in the workforce, or getting back in it if you’ve already retired.
If you want to maximize your Social Security benefit, it’s crucial that you have at least 35 years of income on the books. That’s because your Social Security income is determined by your 35 highest-earning years, so if you’ve only worked, say, 32 years, whatever you earn this year would be replacing a zero from one of the years you didn’t work. If you’re not sure what your Social Security earnings are, most people can see their earnings history by opening a MySocialSecurity account at the Social Security Administration website.
Your monthly benefit is determined by your average indexed monthly earnings over your 35 highest-earning years. “Indexed” here means that earlier wages are increased according to wage inflation. For instance, if you became eligible for Social Security this year, your earnings from 1987 would be worth roughly triple in current dollars, according to the index.
Going back to the example above, if your average indexed monthly earnings over 35 years was $4,000, but you only worked for 32 years, then you could raise your Social Security by nearly 10% if you stayed in the workforce and earned what you made on average in those 32 years, which is $4,375.
Even if you have worked 35 years, you can still probably boost your Social Security income because income typically rises over the course of a career as your skills advance and you get more responsibilities, so if you’re able to keep working, it will benefit you in more ways than just a salary.
Be aware of the earnings test
If you’ve started collecting Social Security before your full retirement age, which is between 66 and 67, depending on the year in which you were born, you’ll want to be aware of the retirement earnings test. If you’re still younger than your full retirement age, some or all of your Social Security benefits could be taken away, with a slight upward adjustment to future benefits after full retirement age partially offsetting the negative impact.
For example, say you take Social Security at 62 but work until 65, earning $24,000 a year. If your baseline Social Security benefits are $1,000/month, then you’d lose about four months of benefits each year before full retirement age (FRA). After that, though, your monthly benefit would get an upward adjustment to around $1,070. By age 86, that extra $70 would’ve made up for the benefits lost earlier.
If you won’t reach full retirement age in 2022 and are thinking about going back to work, the first $19,560 you earn is exempt from the earnings test. Therefore, a part-time job therefore might not trigger any loss of benefits, but could still help boost your Social Security payments once you reach FRA if you have less than 35 working years.
If you’re a Social Security beneficiary and willing to stay in the workforce, it could have more benefits than just salary. Consider all your options before you hang up your hat and throw that big retirement party.
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