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Ask Bob: How Will Current High Earnings Impact My Social Security Benefit?

A reader wonders if filing for Social Security the year their earnings hit the Social Security maximum will affect what benefits they receive. Elaine Floyd of Horsesmouth answers.

Question

I will be filing for Social Security in October of 2023. In that year, and prior to October, I will have reached the Social Security 2023 earnings maximum. When will those 2023 earnings replace a previous year of lower earnings to increase my HIGH 35-year Average Indexed Monthly Earnings (AIME)? If not until sometime in 2024, is the increase in benefit automatic? Is it retroactive to October of 2023? Will I be able to tell the amount of 2024 increase that is annual CPI-W cost of living-based versus that which is based upon an increased AIME? (ATR287)

Answer

Your benefit starting in October 2023 will be based on your earnings through the end of 2022, says Elaine Floyd, CFP®, director of Retirement and Life Planning at Horsesmouth. “In January 2024 your 2023 earnings will be reported to SSA [Social Security Administration] by your employer. If the new earnings result in a benefit increase, i.e., they replace a year of lower earnings on your 35-year record, the recalculation will be done automatically.”

In addition, she explains, “Sometime between March and October you’ll receive a letter indicating your new benefit amount as of January 2024 and a lump sum payment representing the increase going back to January 2024 will be deposited in your bank account. The next year it will happen again. If you are still working your 2024 earnings will be reported in January 2025 and your benefit will be adjusted similarly, sometime between March and October, retroactive to January 2025.” This goes on as long as you continue to work and pay into Social Security, she says.

Floyd has two caveats: 1) If you already have 35 years of maximum earnings your benefit increase will be very small, maybe $15 to $20 a month, if that. Even though later earnings count for more than earlier earnings even after indexing, that top tier in the PIA formula has a multiplier of just .15. So, once you’re already at the max, additional earnings count for relatively little. 2) If you are self-employed and reporting earnings via Schedule C, the adjustment takes longer.

“You will be able to distinguish the adjustment due to earnings from the COLA [cost of living adjustment]. The COLA letter comes in December and is clear how the new benefit is figured.”

Got questions? Get answers!

Email Robert.Powell@maven.io.

Question

I will be filing for Social Security in October of 2023. In that year, and prior to October, I will have reached the Social Security 2023 earnings maximum. When will those 2023 earnings replace a previous year of lower earnings to increase my HIGH 35-year Average Indexed Monthly Earnings (AIME)? If not until sometime in 2024, is the increase in benefit automatic? Is it retroactive to October of 2023? Will I be able to tell the amount of 2024 increase that is annual CPI-W cost of living-based versus that which is based upon an increased AIME? (ATR287)

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