AI-displaced workers rehired and Social Security benefit impact, Digi Mart USA News: Picture a 64-year-old operations manager who lost his job to an AI system last year. He claimed Social Security early to cover the gap.
Now his former boss is calling him back, and the offer pays more than his old salary did.
The scenario is hypothetical, but 24/7 Wall St. says the situation is not unheard of.
Fortune reported on November 9 that 19% of U.S. respondents in an SHL survey said AI had replaced them and their employers later asked them to return.
That figure covers only the people surveyed, so it should be read as a snapshot of that group. A recent Inc.
headline summed up the trend: companies want those workers back, and it won’t be cheap.
For someone already collecting benefits, taking a job again cuts two ways. The paycheck can reduce his Social Security payments this year and can increase them over his lifetime.
The outcome depends on how his new earnings compare with the years already used to calculate his benefit.
Social Security bases a retirement benefit on the highest 35 years of earnings, adjusted for wage growth. Each year the agency checks the records of beneficiaries who are still working.
If a new year raises the benefit, the increase is paid retroactively to January following the year of earnings.
Higher pay helps only if it exceeds one of the weaker years already in his top 35, after those years are adjusted for wage growth. For example, if he earns $80,000 and that year replaces an adjusted year of $30,000, spreading the $50,000 difference over 420 months raises his average monthly earnings by about $119.
The benefit formula pays only part of that average. If the increase falls in the 32% tier, that turns $119 into about $38 more per month before accounting for his early claim, and his actual increase would be smaller.
Future cost-of-living adjustments would build on the higher benefit. If his new earnings qualify for an increase, that gain would generally take effect in January 2028.
The higher benefit could also bolster an eligible surviving spouse’s benefit.
At 64, he has not reached full retirement age, which is 67 for anyone born in 1960 or later, so the earnings test applies. In 2027, Social Security withholds $1 for every $2 he earns above $25,560.
On an $80,000 salary, the formula calls for withholding $27,220. If his check matches the $2,170 average for retired workers after the 2027 increase, a full year of checks would total $26,040.
Because the amount withheld cannot exceed what he is owed, he would receive no checks that year.
Those withheld months are not necessarily lost. At full retirement age, Social Security recalculates his benefit to account for months when payments were withheld, easing the early-claiming reduction.
This adjustment is separate from the increase based on his new wages, since one reflects additional earnings and the other credits months without benefits.
Taxes can also come into play in years when he receives Social Security alongside a salary. The IRS adds half his benefits to his other income to determine how much may be taxable.
With an $80,000 salary, up to 85% of any benefits he actually receives could be included in taxable income. If Social Security withholds every check for the year, there may be no benefits to tax.
The bigger opportunity may lie in his savings. If his paycheck covers his bills, he can leave his retirement accounts untouched, giving them more time to grow while his earnings record improves.
He should first plan for the cash shortfall. If the earnings test stops his checks, he lives on his salary alone.
He should also tell Social Security his expected earnings in advance to avoid an overpayment bill later, since that mistake is the hardest to undo. Second, he should review his earnings record in his online benefits account and identify his weakest years.
If several fall well below $80,000, each year back at work could replace one of them, producing a larger paycheck now and a slightly larger benefit for life.
Earnings histories, claiming dates and household finances all differ, and a careful review of his own record will tell him more than any general rule of thumb.
