III. How benefits are calculated
Social Security benefits are based on lifetime earnings of a covered worker. Actual earnings are adjusted to account for changes in average wages since the earnings were received.

  • Average indexed monthly earnings - Calculated for the 35 years in which a worker earned the most. A formula is applied to these earnings to arrive at a basic benefit amount.
  • Primary insurance amount (PIA) - This is how much a worker would receive at full retirement age.


IV. Working after retirement

Work after full retirement age
Recipients of Social Security retirement benefits who have reached full retirement age can work and still collect those benefits. Earnings in or after the month of reaching full retirement age will not reduce Social Security benefits at all.

Work before full retirement age
Individuals who opted to collect Social Security retirement benefits before reaching full retirement age will have their benefits reduced for earnings exceeding certain limits for the months before they reach full retirement age.

Recipients of Social Security retirement benefits who have not yet reached full retirement age will have their benefits reduced for earnings that exceed certain monthly limits. There is no reduction beginning in the month in which they reach full retirement age.
  • Reduction levels
    • $1 in benefits deducted for each $2 in earnings above the annual limit. In 2007, the limit is $12,960.
    • In the year of reaching full retirement age, $1 in benefits for each $3 in earnings over a different annual limit, $34,440 in 2007. This reduction ceases in the month full retirement age is attained.


V. Taxation of benefits

Related Articles
  1. Financial Advisor

    How to Avoid Costly Social Security Mistakes

    Social Security is an important part of most retirement plans. Here are some costly mistakes to avoid.
  2. Retirement

    How Having a Job Affects Social Security Benefits

    Social Security benefits mean a lot to retirees' finances. Having a job, even part-time, can complicate matters if certain benchmarks aren't reached.
  3. Financial Advisor

    10 Things You Need to Know About Social Security

    Every saver should know these ten things about Social Security retirement benefits.
  4. Retirement

    4 Unusual Ways to Boost Social Security Benefits

    Working the system to get the highest legal Social Security benefits just got harder. Two long-time benefits strategies expired with the 2015 budget bill.
  5. Retirement

    How Social Security Benefits Are Estimated & Taxed

    The Social Security check you'll get depends on your work history, when you start claiming a benefit and these other factors.
  6. Retirement

    Top 6 Myths About Social Security Benefits

    Misinformation on retirement benefits is common. We'll set the record straight.
  7. Financial Advisor

    How Working Longer Impacts Social Security

    A look at the impact of working longer on Social Security retirement benefits.
  8. Financial Advisor

    Social Security: To Delay or Not to Delay?

    Should you delay taking your Social Security benefits? As with most things in the financial planning world the answer is: 'it depends.'
  9. Retirement

    Should the Retirement Age Be Increased to 70?

    The general consensus is that Social Security faces a crisis of solvency. How to address it is far less clear-cut.
  10. Retirement

    Understanding Social Security Eligibility

    Who qualifies for Social Security payments and when can they get them?
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center