By Rusty Gloor, National Social Security Advisor at the AMAC Foundation, the non-profit arm of the Association of Mature American Citizens
Dear Rusty: I started drawing my benefits at age 62 due to being laid off from my job at age 60. I have continued working part time and been paying Social Security and Medicare taxes ever since. I am now 66. I have been told that even though I continue to pay these taxes, it will not help increase my monthly social security benefit. Is that true? Signed: Working Beneficiary
Dear Working Beneficiary: Paying into Social Security and Medicare through “FICA” taxes withheld from your paycheck doesn’t change your Social Security (SS) benefit amount. Those taxes aren’t held in a separate personal account for you; rather they are used to pay benefits to all those who currently collect SS benefits, and to help offset healthcare costs for current Medicare enrollees.
From its inception decades ago, Social Security has been a “pay as you go” system where all those working help pay for all those currently collecting benefits. And if you happen to work even after you start collecting Social Security benefits, the FICA tax you pay still goes to help pay benefits for you and for millions of others also collecting Social Security.
Of the 7.65% FICA tax you pay, 6.2% goes to Social Security and 1.45% helps fund Medicare (your employer pays the same amounts). The 6.2% SS tax you pay to Social Security isn’t deposited into a personal account which determines your benefit payment. Instead, your benefit is determined using your earnings record for the 35 years over your lifetime in which you earned the most (with early years adjusted for inflation). Your average earnings in those 35 years are what determines your benefit amount, not how much you paid in FICA tax.
Thus, continuing to pay FICA taxes because you are still working won’t affect your Social Security benefit amount. And because of the way the program is structured, you don’t need to worry about how much you contributed to Social Security in taxes; you will continue to receive Social Security for as long as there are people working and contributing to the program (for the rest of your life) – those now working pay for Social Security benefits now being paid.
What could, however, affect your personal SS benefit amount now is your earnings level while working. Even after you start collecting Social Security benefits, if your current earnings from work are more than any of those in the 35 inflation-adjusted years used to originally compute your benefit, that benefit will be recomputed and increased as appropriate. And just in case you’re wondering, studies have shown that, on average, SS beneficiaries usually recover everything they paid into the system within about 5 years. Said another way, over your lifetime you’ll almost certainly get back much more in benefits than you paid in FICA SS taxes. The pay-back time is more for those who are self-employed (because they must pay both employee and employer portions of FICA), but Social Security is, nevertheless, a pretty good deal which pays a guaranteed retirement benefit for as long as you live after benefits start.
So, what you were told is correct. Paying FICA taxes now won’t help increase your monthly benefit amount. But high earnings now, which are more than any in those 35 inflation-adjusted years used to compute your SS benefit, will.
This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association (NSSA). NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.
