The Social Security Administration recalculates your benefits annually, which means the amount of your checks can change from year to year. This can happen because of factors within your control, such as your work, and factors outside of your control, such as inflation.
Here’s what you should know about when and how the Social Security Administration recalculates Social Security benefit payments.
» MORE: Estimate your monthly Social Security retirement benefit
Cost-of-living adjustments
Social Security benefits increase over time to account for increases in the cost of living. Increases are tied to inflation as measured by the consumer price index, or CPI. (Specifically, it’s the CPI for urban wage earners and clerical workers, or CPI-W.)
For example, the most recent cost-of-living adjustment, or COLA, was 8.7%. That’s because the CPI-W went up by 8.7% since the previous year’s adjustment. The Social Security cost-of-living adjustment (COLA) for 2024 is 3.2%.
These increases are automatic. The Social Security Administration calculates the annual COLA in October, and you’ll see the increase in your payments starting the following January.
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Payment increases from continuing to work
Your Social Security payments depend in part on what you’ve earned throughout your work history. That can include work you do after you start receiving Social Security benefits.
The Social Security payment formula uses your average income from the 35 years when you earned the most, adjusted for inflation. The Social Security Administration reviews income information each year and recalculates benefits as needed. So if you continue to work after you start receiving benefits and you earn more than at least one of those 35 years, your benefits will increase.
If you worked fewer than 35 years, the formula fills in the “missing” years with zeroes. For example, if you worked for 30 years, the formula would use your income from those 30 years plus five years worth of $0 income. If you work additional years after you start receiving Social Security benefits, what you earn will replace the $0 years, and that can increase your benefits.
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Payment decreases from continuing to work
If you start receiving Social Security benefits before your full retirement age, there are income limits. If you exceed the limits, your payments are reduced.
🤓Nerdy Tip
The full retirement age is 67 for people born in 1960 or later. For people born before that, it’s lower. The Social Security Administration has a retirement age calculator that can show you the specifics based on your year of birth.
Limits before the year you’ll reach full retirement age
For any full year when you receive retirement benefits before your full retirement age, there’s an annual income limit.The limit is $22,320 in 2024.
If you’re receiving Social Security payments and continuing to work, then for every $2 you earn above the full-year income limit, your benefit payments are reduced by $1. So during 2023, if you earned $26,240, or $5,000 over the limit, your benefits would be reduced by $2,500.
The full-year income limit doesn’t apply to the year when you reach full retirement age. For example, if you turn 67 in 2024, the full-year income limit would apply in 2023 but not in 2024.
You can use the Social Security Administration’s retirement earnings test calculator to see whether and how your benefits could be reduced based on your date of birth, income and monthly benefit amount.
Limits during the year you’ll reach full retirement age
During the year you’ll reach full retirement age, the income limit is substantially less strict. In 2024 the income limit in the year a person reaches full retirement age is $59,520. In addition, the limit applies only to the months before your birthday month. For example, if you turn 67 in August 2024, the limit would apply to what you earn from that January through July.
For every $3 you earn above the limit, your benefit payments are reduced by $1. So if you earned $62,520 in the months before your birthday month — $6,000 over the limit — your benefits would be reduced by $2,000 for the year.
Starting the month you reach your full retirement age, your earnings are no longer subject to income limits.
Credits for reduced benefits before full retirement age
If you start receiving Social Security benefits before your full retirement age, your payments are reduced by a certain percentage for each month between the start of your benefits and your full retirement age.
But if you had benefit payments withheld because of income limits, you get credit back for each month your benefits were withheld. It’s as if you’d started receiving benefits one month later from when you reach your full retirement age.
For example, if you start receiving benefits early and then exceed the income limits for 12 months, you would get credit for those 12 months when you reach the full retirement age.
How to report changes in earnings
Your Social Security payments depend on earnings information you provide to the Social Security Administration. If your circ*mstances change and you need to report that you’re earning more than anticipated, for example, you need to talk to someone. There’s no way to report online.
You can get in touch with your local Social Security office or call the Social Security Administration at 800-772-1213 to report changes.
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