Effects of Delaying Receipt of Retired-Worker Benefits
People contemplating retirement often ask whether the potential increase in Social Security benefits due to additional earnings is worth as much as the taxes paid on those earnings. Because the weighted-benefit formula provides decreasing returns on increasing earnings, the marginal benefit increase is usually less than the value of the taxes paid, especially for higher-earning workers in the 15 percent PIA bracket and certainly if the additional earnings produce no benefit increase at all because earnings in the year do not replace one of the previous 35 highest years of earnings. Of course, that failure to generate sufficient additional benefits is no reason not to work. Most people work because they want the income or want to stay busy, not merely to increase their Social Security benefits. In any event, the financial effect of reducing early-retirement reductions and increasing delayed-retirement increases usually far exceeds the effect of additional earnings on an individual’s monthly Social Security benefit amount.