The longer I work, the larger will be my Social Security benefits. This is due to Social Security's Recomputation of Benefits provision. Each year you work, you add to your earnings record leading Social Security to automatically recalculate your benefits.
In a nutshell, Social Security averages your highest 35 years of earnings to figure your Average Indexed Monthly Earnings or AIME. Then it plugs your AIME into a formula that figures out your full retirement benefit, called your Primary Insurance Amount (PIA). What benefits you can get for yourself and your spouse (including your ex spouse(s) and children, if they are young enough or are disabled) is all hooked to your PIA.
Social Security considers all your covered earnings from age 16 on and indexes, based on historic wage growth, all earnings through the year you are age 60. Earnings after age 60 are just treated at face value. So if you are now, say, 65, are still working, and you started work at 16, you have 45 years of indexed earnings and 4 years of non-indexed earnings. Social Security then takes the 35 largest of these values to compute your AIME.
If your current earnings are above the smallest of the 35 (ignoring this year's earnings) being used to form the AIME, bingo! You'll raise your AIME, which will raise your PIA, which will raise your Social Security check (checks, if your dependents are also collecting).
Is this a big deal? Well, I just looked at my own situation using my company's software. I didn't really start contributing much to Social Security until I was 29. I was in grad school before then and on a postdoc after grad school. If I were to stop working today and wait until 70 to collect benefits -- when they would start at their highest value, my lifetime benefits would be $774,210. (Lifetime benefits are calculated as the present value of benefits through age 100 discounted at a 3 percent rate above inflation.) If I were to work until age 70, my lifetime benefits rise by $80,312 to $854,522. If I work till 80, they rise another $88,154 to $942,676. Wow! Working to age 80 will raise my lifetime Social Security benefits by 22 percent!
Link - http://finance.yahoo.com/blogs/the-exchange/inside-social-security-obscure-incentive-keep-americans-working-224727054.html