Lynn Brenner Lynn Brenner

Brenner answers questions about all aspects of family finance.

My husband and I are 72 and 76 and still work full time while collecting Social Security. What happens to the money we pay into Social Security in payroll taxes now?


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It's paid out in current Social Security benefits or it goes into the Social Security Trust Fund to be paid out in future benefits -- and you and your husband are among the potential recipients of those benefits. In other words, if you work while collecting Social Security, the Social Security taxes you pay may eventually boost your own benefit.

Many people are surprised to learn that Social Security taxes are deducted from your paycheck even if you're already collecting a Social Security benefit. It's easier to understand why this happens if you remember that payroll taxes are taxes -- not contributions to a personal retirement account. (By the same token, your property taxes continue to help pay for public schools, even after your kids are grown up.)

As long as you're in the workforce, the Social Security Administration automatically recomputes your benefit every year. Your benefit is determined by an actuarial formula that crunches 35 years of your work history. The formula always uses your 35 highest-paid work years. The recomputation might boost the amount you're entitled to receive if your 2012 earnings can replace an earlier year in that 35-year work record -- a year in which you earned less than you did in 2012 because you were unemployed, or worked only part-time, for example. Any benefit increase you're entitled to receive based on this year's recomputation won't be paid to you until December 2013; but it will be retroactive to January 2013.

The bottom line Every worker's Social Security benefit is recalculated annually, so even a part-time retirement job may boost your benefit.

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