— Signed: Working Senior
Dear Working Senior: Yes, if you have 10 years of zeros in your 35-year earnings history, your more recent earnings each year will replace one of those zero years, if the earnings are what Social Security considers “substantial” (which your $57,000 income would be). Social Security gets your earnings information from the IRS as soon as your W-2 is available each year and makes any benefit adjustment necessary at that time (if you’re self-employed the adjustment is made after you file your income taxes). When Social Security receives your income information each year, they will recompute your “average indexed monthly earnings” (AIME) with your revised 35-year earnings history (including one less zero year), adjust your “primary insurance amount” (or “PIA”), and increase your benefit accordingly. I can’t tell you how much of an increase it would be because I don’t have access to your lifetime earnings records, but you shouldn’t expect it to be a major increase each year. After all, your new earnings will only represent 1/35th of your AIME, so the increase to your benefit won’t be big. But if you continue to work with significant earnings your benefit will continue to increase over time and each increase you get will last for the rest of your life.
You are correct that for each year you delay claiming benefits beyond your full retirement age of 66, you’ll earn delayed retirement credits (DRCs) of 8%, up until you are 70 when your benefit would be 32% higher than at your full retirement age. You’re earning those DRCs now at a rate of 2/3rds of 1% each month after your FRA and will continue to earn them until you claim (but not after age 70). However, if you are trying to compare the increase you will get by claiming benefits and continuing to work, versus the 8% per year increase you will get by delaying claim of your SS, please be aware that the 8% annual increase will be much more than any increase you’ll get from working and replacing a zero year. And the fact is, if you continue to delay and also continue to work, you’ll still be improving your eventual benefit from your earnings and you’ll still earn those delayed retirement credits until you are 70. In other words, you can do both.
The information presented in this article is intended for general information purposes only. The opinions and interpretations expressed are the viewpoints of the AMAC Foundation’s Social Security Advisory staff, trained and accredited. To submit a question, visit amacfoundation.org or email email@example.com.