The Economy Is Turning “C-Shaped,” Economists Say. His Bigger Raise May Add Less to Social Security Than a Lower Earner’s Smaller One

Picture two 62-year-olds who both get better pay late in their careers. One has earned low wages for decades; the other has a strong earnings record and gets the bigger raise. Social Security’s formula can still give the lower earner’s extra earnings much more weight. That difference can show up in every monthly check for the rest of their lives.

The contrast matters as the wage picture shifts. NPR recently looked at what some economists call a “C-shaped” economy. One measure showed inflation-adjusted weekly earnings rising at the lower end of the wage scale while falling at the upper end. Wage growth for high-school and college-educated workers has also started to come together.

A Raise Only Counts If It Beats One of Your 35 Best Years

Social Security generally figures retirement benefits from a worker’s 35 highest years of earnings, adjusted for wage growth. A raise at 62 helps only if it creates a year strong enough to push one of those 35 out. If he has fewer than 35 years of work, the new year replaces a zero, and the effect can be larger.

Those years are averaged into average indexed monthly earnings. A progressive formula then turns that average into the primary insurance amount. For someone turning 62 in 2026, the formula pays:

• 90% of the first $1,286 of average monthly earnings
• 32% of the amount from $1,286 through $7,749
• 15% of anything above $7,749

Why the Earnings Disconnect

Picture three workers whose late-career years each replace weaker ones, raising each person’s career average by $200 a month.

Worker A’s extra $200 lands entirely in the 90% slice. His basic benefit rises $180 a month, or $2,160 a year.

Worker B sits in the 32% slice and makes $64 a month, or $768 a year. Worker C, already above $7,749, gains just $30 a month, or $360 a year.

They all got the same improvement, yet Worker A gets six times what Worker C does. Actual checks also depend on the age you claim.

Now apply the C-shaped story. Say the lower earner’s low raise lifts his career average by $100, and the higher earner’s much bigger raise lifts his by $500. At 90%, the first worker makes $90 a month. At 15%, the second gains $75. The smaller raise produces the bigger benefit increase.

Higher pay still raises the eventual benefit, boosts current income, and leaves more to save. The formula just pays less for each added dollar once a career average is already high. That is by design: Social Security replaces a larger share of earnings for people with lower lifetime averages.

At 62, His Bend Points Are Locked In Even If He Waits to Claim

The dividing lines in the formula, called bend points, are set by the year a worker first becomes eligible. That is generally the year he turns 62. Someone who reaches 62 in 2026 keeps the $1,286 and $7,749 lines even if he claims at 67 or 70.

Working longer can improve the earnings record by replacing weak years, and Social Security recalculates automatically when a new year beats an old one. Delaying the claim changes the age-based adjustment applied to whatever basic benefit results. The earnings side can keep improving after he files. A reduction for claiming early is permanent.

Cost-of-living increases also start building on his basic benefit from 62, whether or not he has claimed. With two of three measurement months in, the 2027 increase is tracking around 3.5%-3.6%.

The higher earner can use this when deciding what to do with his raise. If the next dollar of career average adds only 15 cents to his benefit, directing more of the raise into a workplace retirement plan can build another source of retirement income. Traditional 401(k) salary deferrals generally still count as Social Security wages.

Check These Four Numbers Before Counting on a Bigger Check

1. Whether he already has 35 years of covered earnings. If not, each new year replaces a zero, which is the most valuable trade.
2. Which weak year the new salary would replace. A strong year that pushes out a part-time year from his twenties adds far more than one that replaces a nearly identical year.
3. How much that trade changes his career average. The average is spread across 35 years, so a single year moves it only modestly.
4. Which slice of the formula his new average falls into. The extra amount gets multiplied by 90%, 32%, or 15%, and that often matters more than the size of the raise.

What a Late-Career Raise Is Really Worth

A C-shaped economy may be narrowing part of the wage gap late in these careers, and Social Security can narrow it again in retirement. Before counting on a raise to change your benefit, pull your earnings record from your Social Security account and see which year the raise would replace. Treat the claiming age as the choice to get right, because that is the one you cannot easily undo. Every work history has its own quirks, from gaps and part-time years to a spouse’s record, so the same raise can mean very different things for two people.

Contact [email protected] for any questions or corrections.