The Work Decisions You're Making Now Could Affect Your Social Security Later

Key Points

• If you are still working, the decisions you make now will affect your future Social Security benefits.

• Your benefits will be based on a 35-year work history and equal a percentage of your average wage.

• This means that the higher your average wage, the bigger your Social Security benefit will be later on.

• The $23,760 Social Security bonus most retirees completely overlook ›

Your Social Security benefits are probably going to be very important to your financial security as a senior. Those benefits will continue to pay you for as long as you're alive, so you won't need to worry about your account running dry later in your senior years.

While benefits don't perfectly keep pace with inflation, they do increase as prices rise due to periodic cost-of-living adjustments (COLAs), so you can maintain at least most of your buying power. Since Social Security benefits are a reliable and safe source of funds for most people, trying to maximize these benefits makes good sense.

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Unfortunately, if you are currently working, you could be making decisions right now that reduce the amount of money Social Security provides to you later. Here's what you need to know about how today's decisions affect the benefits you'll be collecting in your later years.

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Your future Social Security benefit is determined by your earnings today

The first thing that you need to know is that the benefits you'll ultimately collect from Social Security are being determined throughout your working life.

Specifically, your benefits are based on your inflation-adjusted average wages during the 35 years when you earn the most. Social Security keeps an earnings record that tracks your wages each year you work. When it comes time to claim benefits, your earnings over time will be adjusted to account for wage growth.

You then get benefits equal to a specific percentage of your average monthly wage: your average indexed monthly earnings (AIME). This means that if you earn less than you could during your working life, or if you work for fewer than 35 years, you'll end up with a reduced monthly Social Security check.

On the flip side, if you take steps to increase your earnings, you'll increase your average wage, and your monthly Social Security check will climb along with it. Such steps might include negotiating for a better salary when you find a new job, doing some side work, asking for raises at performance reviews, and finding ways to advance in your career.

Consider your future Social Security benefit as you make career plans

There are quite likely to be times when you'll be out of the workforce -- either voluntarily to do things like serve as a caregiver, or because you're laid off. And there's not a whole lot you can, or should, do about that, since sometimes taking a step back from work can be one of the most valuable things that you do with your time.

However, this doesn't mean you shouldn't be considering the impact of your career choices on your future Social Security benefits. If you opt not to even try to negotiate your salary or periodic raises, for example, you'll be shortchanging yourself by passing up a higher future benefit.

Of course, taking steps to increase your income would also help you in other ways. With an increased salary, you could put more money into your retirement plans. You could also land a larger 401(k) match if your company matches up to a specific percentage of your earnings. These advantages of earning more money can help you achieve financial security faster.

So, even if you have to push yourself a little to do it, it's worth making the moves now that will boost your income both now and later. Do your research and ask for that raise. Find out about management training programs at work. Be on the lookout for higher-paying positions. And keep focused when you can on advancing your career, so you can have the financial security you deserve.

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