Social Security’s Huge Obscure Incentive To Keep Working


Social Security Administration 2 SC

I just turned 62, but feel 42 and, according to my kids, act like 12. I have a great job, perhaps the best job in the world. I’m an economics professor and get to teach, consult, write, advise governments, and run my personal finance software company. Each of these “jobs” is more fun than the next. For me retirement, as in no longer doing these jobs, would be work. I’d have to work very hard to find things as entertaining.

I realize I’m extraordinarily lucky. Simply being employed is a big deal these days. Being healthy enough to work late in life is another huge gift. And, the icing of doing something you love, well, it’s on the cake.

How long do I intend to “work”? Hopefully, right up to my last day. And, as if I didn’t have enough good reasons to work, Social Security offers me a significant incentive for doing so. The longer I work, the larger will be my Social Security benefits. This is due to Social Security’s Recomputation of Benefits provision.

Each year you work, you add to your earnings record leading Social Security to automatically recalculate your benefits. The gory details are available on the SSA website.

In a nutshell, Social Security averages your highest 35 years of earnings to figure your Average Indexed Monthly Earnings or AIME. Then it plugs your AIME into a formula that figures out your full retirement benefit, called your Primary Insurance Amount (PIA). What benefits you can get for yourself and your spouse (including your ex spouse(s)) and children, if they are young enough or are disabled) is all hooked to your PIA.

Read More at .By Laurence Kotlikoff.


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