Social Security Administration (SSA) Benefits Increase in 2023

Posted on October 26, 2022 by admin

Social Security Administration announced that the COLA will increase Social Security benefits by 8.7% beginning January 2023 — the largest since 1981.

Approximately 70 million Americans will see a 8.7% increase in their Social Security benefits and Supplemental Security Income (SSI) payments in 2023. On average, Social Security benefits will increase by more than $140 per month starting in January 2023.

A COLA at the this level is almost unprecedented. There were only three other times since the start of automatic inflation adjustments that COLAs were higher (1979-1981)

The Social Security Administration (SSA) will mail COLA notices throughout the month of December to retirement, survivors, and disability beneficiaries, SSI recipients, and representative payees.

But if you want to know your new benefit amount as soon as possible, you can securely obtain your Social Security COLA notice online using the Message Center in your personal my Social Security account. Your personal my Social Security account gives you immediate access to important information and tools.

According to The Motley Fool, December 2022, the Social Security Administration estimates monthly payouts for an assortment of beneficiaries will be as follows:

Average retired worker: $1,681/month
Average worker with disabilities: $1,364/month
Average aged couple, both receiving benefits: $2,734/month
Average widowed mother and two children: $3,238/month
Average aged widow(er) with no children: $1,567/month

Here’s what these same monthly Social Security checks will look like once the 2023 COLA takes effect in January:

Average retired worker: $1,827 ($146/month increase)
Average worker with disabilities: $1,483 ($119/month increase)
Average aged couple, both receiving benefits: $2,972 ($238/month increase)
Average widowed mother and two children: $3,520 ($282/month increase)
Average aged widow(er) with no children: $1,704 ($137/month increase)

For a majority of recipients, a triple-digit monthly “raise” is on the way, explains The Motley Fool.

January 2023 marks when other changes will happen based on the increase in the national average wage index. For example, the maximum amount of earnings subject to Social Security payroll tax in 2023 will be higher. The retirement earnings test exempt amount will also change in 2023.

There are few, if any, federal agencies that impact the lives of the American people to the extent that the Social Security Administration (SSA) does. Millions count on SSA—retirees who worked hard their whole lives, people who are no longer able to work due to disability, and many more.

SSA’s programs touch the lives of almost every person in the nation. SSA employees work diligently to ensure that they receive critical benefits and other services, and it is my honor and privilege to lead them in their efforts.

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Social Security Trust Fund

Posted on October 15, 2022 by admin

Social Security’s Trustees project that the trust fund will be depleted in 2034. At that point, 71 million beneficiaries could face across-the-board Social Security benefit cuts of 23 percent if elected leaders fail to act.

With the retirement of baby boomers and lengthening life expectancies, programs critical to older Americans, such as Social Security, will come under significant strain in coming decades. Social Security’s Trustees project that the combined Old-Age and Survivors Insurance and Disability Insurance (OASI) trust fund will be depleted in 2034. At that point, 71 million beneficiaries could face across-the-board Social Security benefit cuts of 23 percent if policymakers fail to act.

Social Security is the primary source of retirement income for million of Americans. But without action, it will lack sufficient resources to pay for all of the benefits promised under current law.

Almost every American worker pays a dedicated payroll tax, which entitles them to benefits when they retire or become disabled. But as the population ages, fewer workers will be paying taxes to support each Social Security beneficiary, thereby endangering the program’s finances.

Understanding the importance of the Social Security program for low-income Americans is a critical aspect of reforming the program in a fair and equitable way.

In 2018, Social Security was responsible for lifting almost 22 million Americans out of poverty, nearly 15 million of whom were seniors age 65 and older.

Options for improving the financial outlook of Social Security’s retirement program include:

Increasing payroll taxes. Raise the payroll tax rate from its current level of 12.4 percent (half paid by employees and half by employers) on wage earnings subject to the tax. In 2022, earnings up to $147,000 will be taxed.
Raising the full retirement age. Propose increasing the retirement age above age 67 for younger cohorts to account for future gains in average longevity.
Reducing initial benefits. Change the amount that retirees can receive when they first apply for benefits. Many proposals combine a reduction in benefits for high earners with an increase in benefits for lower earners. (This is known as “progressive price indexing.”)
Adjusting benefits after retirement. Slow the growth of retirees’ benefits over time by changing the cost-of-living index. Many economists believe that Social Security currently uses an index that overstates inflation, so benefits grow faster than the true cost of living. They propose replacing the current index with chained-CPI, which is a more accurate measure of inflation. (That change would also apply to other inflation-indexed federal retirement programs and tax provisions.)

These proposals are intended to put Social Security’s finances on a long-term sustainable footing.

References:

https://www.pgpf.org/finding-solutions/retirement

Social Security cost of living for 2023 could increase 8.7%

Posted on September 17, 2022 by admin

Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. New York Times

More than 70 million Americans receiving Social Security benefits could see the largest annual cost-of-living increase in more than four decades in 2023, considering the government CPI inflation data.

The Social Security Administration will announce the formal 2023 figure around October 13, after the release of September CPI inflation data. However, the August CPI point to a Social Security cost-of-living adjustment, known as the COLA, of 8.7 percent, according to an estimate by the Senior Citizens League that lobbies for seniors and reported by The New York Times.

The COLA is calculated annually using a formula detailed in federal law. It uses one of the broadest government measures of inflation, known as the Consumer Price Index for Urban Wage Earners and Clerical Workers‌, or CPI.‌

Social Security averages together the CPI figures during the third quarter of each year, and compares that with the previous year’s figure. For example, the 2023 COLA will be calculated by averaging together the CPI figures for the third quarter of 2022 and comparing that with the same averaged figures for 2021.

Rapid inflation typically results in trouble for equity stocks and the overall market. Financial risk assets have historically performed badly during periods of inflation, while tangible assets like real estate have held their value better.

References:

Social Security is a program run by the federal government. The program works by using Social Security taxes paid into a trust fund to provide benefits to people who are eligible. Eligibility for Social Security retirement benefits starts at age 62 (the earliest you can receive them) to age 70 (when you hit your greatest amount).

Retirement Benefits

Posted on November 23, 2021 by admin

“Planning is the key to creating your best retirement.”

Social Security is part of the retirement plan for almost every American worker. It provides replacement income for qualified retirees and their families. On average, retirement beneficiaries receive 40% of their pre-retirement income from Social Security. Thus, it’s important to understand when planning for income during retirement, Social Security was designed to replace only a percentage of your pre-retirement income based on your lifetime earnings.

The amount of your average wages that Social Security retirement benefits replaces varies depending on your earnings and when you choose to start benefits. If you start receiving benefits at age 67 (full retirement age), this percentage ranges from as much as 75 percent for very low earners, to about 40 percent for medium earners, and about 27 percent for high earners. If you start benefits earlier than age 67, these percentages would be lower, and after age 67 they’d be higher.

Most financial advisers state that you will need about 70 percent of pre-retirement income to live comfortably in retirement, including your Social Security benefits, investments, and other personal savings and sources of income.

When you work and pay Social Security taxes, you earn “credits” toward Social Security benefits. The number of credits you need to get retirement benefits depends on when you were born. If you were born in 1929 or later, you need 40 credits (usually, this is 10 years of work).

If you stop working before you have enough credits to qualify for benefits, the credits will remain on your Social Security record. If you return to work later, you can add more credits to qualify. Social Security Administration (SSA) can’t pay any retirement benefits until you have the required number of credits.

When you work, you pay taxes into Social Security. SSA use the tax receipts to payout benefits to:

People who have already retired.
People who are disabled.
Survivors of workers who have died.
Dependents of beneficiaries.

The money you pay in taxes isn’t held in a personal account for you to use when you get benefits. SSA uses your taxes to pay people who are currently getting benefits.

Any unused money goes to the Social Security trust fund that pays monthly benefits to you and your family when you start receiving retirement benefits.

Retirement benefit

SSA will base your retirement benefit payment on how much you earned during your working career. Higher lifetime earnings result in higher benefits. If there were some years you didn’t work or had low earnings, your benefit amount may be lower than if you had worked steadily.

The age at which you decide to retire will also affect your benefit. If you retire at age 62, the earliest possible Social Security retirement age, your benefit will be lower than if you wait.

Full retirement age, or FRA, is the age when you are entitled to 100 percent of your Social Security benefits. If you were born between 1943 and 1954, your full retirement age was 66. If you were born in 1955, it is 66 and 2 months. For those born between 1956 and 1959, it gradually increases, and for those born in 1960 or later, it is 67.

Those dates apply to the retirement benefits you earned from working and to spousal benefits, which your husband or wife can collect on your work record. Keep in mind:

Claiming benefits before full retirement age will lower your monthly payments; the earlier you file — you can start at age 62 — the greater the reduction in benefits.
You can increase your retirement benefits by waiting past your FRA to retire. Each month you put off filing up to age 70 earns you delayed retirement credits that boost your eventual benefit.

Choosing when to start receiving retirement benefits is a personal decision. If you choose to retire and begin receiving benefits when you reach your full retirement age, you’ll receive your full benefit amount. SSA will reduce your benefit amount if you decide to start benefits before reaching full retirement age.

References:

Social Security Cost-of-Living Increase

Posted on November 6, 2021 by admin

Social Security Announces 5.9 Percent Benefit Increase for 2022

Based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2020 through the third quarter of 2021, 68 million people — including retirees, disabled people and others – who receive Social Security and Supplemental Security Income (SSI) benefits will receive a 5.9% cost-of-living adjustment in 2022, the Social Security Administration announced.

For the average retiree who received a monthly check of $1,559 this year, a 5.9% rise would increase that payment by $91.98, to $1,650.98, in 2022.

The 5.9 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2022. Increased payments to approximately 8 million SSI beneficiaries will begin on December 30, 2021. (Note: some people receive both Social Security and SSI benefits).

The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics.

The highest COLA increase was 14.3% in 1980. Inflation hit a peak 13.5% in 1980, dropped to 20.3% the following year and 6.1% in 1982, according to the data from the Federal Reserve Bank of St. Louis.

Social Security and SSI beneficiaries are normally notified by mail starting in early December about their new benefit amount. Most people who receive Social Security payments will be able to view their COLA notice online through their personal my Social Security account.

References:

Advantages to Taking Social Security Benefits at Age 62

Posted on September 2, 2021 by admin

“Social Security’s trust funds will become unable to pay full benefits starting in 2034, one year earlier than estimated last year.” Social Security Administration Trustee Report

Social Security has two programs, one for retirees and another that provides disability benefits. The Old-Age and Survivors Insurance Trust Fund will become unable to pay full benefits starting in 2033, a year earlier than projected in 2020, while the Disability Insurance Trust Fund will become depleted in 2057, or 8 years earlier, according to Social Security Administration.

The U.S. economic recession caused by COVID-19 led to a drop in U.S. employment and a resulting decrease in payroll tax revenue, which accelerates the depletion of Social Security’s reserves.

When to claim benefits

You can start receiving your Social Security retirement benefits as early as age 62. And, there are advantages and disadvantages to taking your benefit before your full retirement age. Matter of fact, 31% of women and 27% of men claim their Social Security benefits as soon as they qualify at age 62 in 2018.

The primary advantage is that you collect benefits for a longer period of time.
The primary disadvantage is your benefit will be reduced. Each person’s situation is different.

The earliest you can apply for Social Security benefits is four months before the month you want your benefits to start, and the earliest your benefits can start is your first full month as a 62-year-old. For example, if you turn 62 in June, your benefits can begin in July, and you can apply as early as March. And, Social Security Benefits are actually paid one month in arrears in August.

There is an exception: If you were born on the first or second day of a month, you can begin collecting your benefits in that month.

You may need your Social Security Benefits as a source of guaranteed income to help pay bills, or if you anticipate not living long enough to reap the rewards of delaying.

Social Security replaces a percentage of your pre-retirement income based on their lifetime earnings. The portion of your pre-retirement wages that Social Security replaces is based on your highest 35 years of earnings and varies depending on how much you earn and when you choose to start benefits.

When you work, you pay taxes into Social Security and the Social Security Administration uses the tax money to pay benefits to:

People who have already retired.
People who are disabled.
Survivors of workers who have died.
Dependents of beneficiaries.

The money you pay in taxes isn’t held in a personal account for you to use when you get benefits. We use your taxes to pay people who are getting benefits right now. Any unused money goes to the Social Security trust fund that pays monthly benefits to you and your family when you start receiving retirement benefits.

Living in retirement

You’re officially retired and have worked hard to build up your retirement nest egg. As you transition your mindset from saving to spending, you’ll want to now change your focus: Protect what you have, don’t run out of money, develop a housing strategy for where you’ll live over the next 20–30 years, and hopefully, enjoy life as much as you can with your friends and family.

Claiming Social Security at 62 makes sense in several scenarios. Below are four reasons to consider filing as early as possible.

You’re out of work against non-voluntary – Many people are forced out of a job before they’re ready to retire. If you’ve been downsized and can’t find a new job, Social Security could help replace of your regular paycheck. Furthermore, the coronavirus pandemic has forced a lot of seniors out of the workforce, whether due to layoffs or health concerns. If you’re able to compensate for not working by claiming benefits early, do so since it’s a better bet than racking up debt.
You’re out of work temporarily and need money – Maybe you’re not working right now to address a health issue or lay low until the pandemic is over, but you’re confident you can get back out there in six months. In that case, claiming Social Security at 62 could be a smart move because you can actually use that money as a loan of sorts. One lesser-known Social Security rule is that you’re allowed to undo your filing once in your lifetime. If you claim benefits at 62 but are working again in a few months, you can withdraw your application, repay the SSA the benefits it paid you, and then file again at a later age so you don’t slash your benefits in the process. The only catch is that you must undo your claim and repay your benefits within 12 months. But if you can pull that off, you can collect Social Security on a temporary basis without locking yourself into a lower monthly benefit forever.
You’re tired of working and can get by on your Social Security paycheck – Maybe you have the option to work, but at this point in life, you’re tired of doing it. If your expenses are such that you can get by on your Social Security income, or a combination of Social Security and other income sources, then there comes a point when you should let yourself off the hook after a lifetime of hard work. If you’re going to claim Social Security early for this reason, you should make sure to have a healthy retirement savings balance to compensate for a lower monthly benefit.
You Have Minor or Disabled Children at Home – If you have children, eligible grandchildren, or even a spouse providing care for these children at home, these family members may be eligible for a benefit. There’s a rule that states that before benefits can be paid to anyone off of your work record, you have to be receiving benefits. That means filing early could make more sense than waiting. When combined with your benefits, the benefits to children and your eligible spouse can be up to 180% of your full retirement age benefit. If you have children at home that meet the criteria for eligibility, that’s an obvious reason to consider filing early.

It might seem like it makes sense to wait to file until full retirement age, then, when you’d receive $2,000 (versus filing at 62, when you’d only get $1,500 per month).

If you lived until 90, you’d receive an additional $70,000 in benefits for delaying filing until 66 instead of filing at 62. But this calculation doesn’t take into account the benefits paid to your children. While your children would be eligible for benefits based upon your retirement, the kids cannot get benefits until you file. That means your family would able to collect thousands of dollars more in lifetime benefits if you file early and turn on the benefits for your kids.

For every good reason to claim Social Security at 62, there’s an equally good reason to wait. On average, retirement beneficiaries receive 40% of their pre-retirement income from Social Security.

References:

You and Claiming Your Social Security Benefits

Posted on August 17, 2021 by admin

“Choosing what age to start collecting Social Security retirement benefits and which type of benefit to claim are extremely challenging and difficult.”

Social Security is a program managed by the federal government (Social Security Administration). The program works by using taxes paid into a trust fund to provide Social Security benefits to people who are eligible. It provides you with a source of income when you retire or if you can’t work due to a disability. It can also support your legal dependents (spouse, children, or parents) with benefits in the event of your death.

Understanding your Social Security benefits and when to claim those benefits can be challenging and complicated. “There are 2,728 rules in the Social Security handbook,” said Laurence Kotlikoff, Boston University economics professor and Social Security expert. “And then there’s literally hundreds of thousands of rules about those 2,728 rules. It’s the most complicated system I think mankind has ever developed.”

As a result of the program’s complexity, most Americans do not have a good understanding of Social Security, according to a Nationwide Retirement Institute® 2021 Social Security Survey. Moreover, many people don’t know what they don’t know:

Social Security is a “pay as you go” program; most of the Social Security taxes paid by today’s workers go straight to the benefit checks for today’s current retirees.
Only 16% know what age they are eligible for full Social Security benefits. For those born in 1960 or later, full retirement age is 67.
45% believe Social Security benefits will go up automatically when reaching retirement age after filing early. Filing early locks in a permanent reduction in Social Security benefits.
Half of U.S. adults (54%) don’t know what percentage of their income will be replaced by Social Security. It depends on lifetime earnings, but for middle-income individuals the replacement rate is usually around 40%.
55% believe or don’t know Social Security benefits are tax free. They are for low-income taxpayers, but for most people up to 50% of benefits are taxable.

How much you will receive from Social Security when you retire depends on how much you’ve earned and how long you have worked under the Social Security system. Your retirement benefit will be calculated by the Social Security Administration (SSA) based on your average lifetime earnings, but only your highest 35 years of earnings will count and only the years that you paid Social Security taxes.

The amount you receive will also be affected by whether you start collecting benefits early (you’ll get less), whether you collect benefits late (you’ll get more), whether you work after you retire, whether other family members receive benefits based on your earnings record, whether you collect certain other government benefits, and whether the cost of living rises.

It’s important to understand that Social Security is designed to provide a safety net of income for the retired, the disabled, and survivors of deceased insured workers. And, a key consideration for when you claim Social Security benefits is to maximize your income for a retirement that could last longer than 30 years.

The contributions you and your employers make during your working years provide:

Current retirees and other Social Security recipients with payments
A guaranteed lifetime income benefit when you reach retirement

Your base benefit or primary insurance amount (PIA) is calculated according to your “full retirement age,” or FRA, and your FRA is determined by your date of birth. If you claim Social Security benefits any time before your FRA, you lock in a permanent reduction in monthly income. Claiming at 62 translates to a reduced monthly income of 25% to 32%, relative to your FRA monthly benefit. That means you may receive less monthly retirement income, every year, for potentially several decades.

By waiting until age 70, you can lock in increased monthly benefits. If your FRA is 67, your monthly income would increase 24% by waiting. The facts are:

Age 62 is the earliest you can claim your benefit
Waiting to claim Social Security after age 62 results roughly in 8% increase in monthly income per year for each year you delay claiming (up to age 70).
If your FRA is 66, your monthly income would increase 32% by waiting.
If your FRA is 66 years and 10 months (if you turned 62 in 2021), your monthly income would increase 29.2% by waiting.

While the government does not have a specific account set aside just for you with your FICA contributions (the taxes for Social Security and Medicare paid by you and your employer), one of the most powerful features of Social Security is that it provides an inflation-protected guaranteed income stream in retirement, ensuring against the risk you’ll outlive your savings.

Even if you live to 100 or more, you’ll continue to receive income every month. And, if you predecease your spouse, your spouse also receives survivor benefits until their death.

“As of 2021, due to increased longevity and a decrease in the number of workers per beneficiary, and if changes are not made to the existing system, the Social Security Administration’s surplus fund will be depleted by 2034.”

Social Security is primarily financed through a dedicated payroll tax. There are also two other sources that fund this pool of money:

Taxes on some recipients’ benefits
Interest earned on the pool of money (Surplus Fund)

“As of 2021, due to increased longevity and a decrease in the number of workers per beneficiary, Social Security will have to tap the surplus fund to meet its obligations. And, if current projections are correct, Social Security will have enough reserves to pay out 100% of its promised benefits until approximately 2034”, according to The 2020 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds from the Social Security Administration.

Although there is time for Congress to fix the problem, if changes are not made to the existing system, the surplus fund will be depleted by 2034. The original pool of money will still be funded by payroll taxes, benefit taxes and interest, but beneficiaries would begin receiving reduced benefits. Which means that benefits will remain fully payable until at least 2034, with 79% of benefits payable through 2093 and 73% of benefits payable thereafter. These estimates assume that the existing system remains unchanged.

In general, you can cancel your Social Security claim if you do so within the first 12 months of receiving benefits. But, you must repay the full amount you’ve received, and the full amount a current spouse or family member received based on your benefit. Then, you’re eligible to claim again at a later date and will receive a larger monthly payment. Each individual can only cancel a claim once in their lifetime.

“Social Security can add certainty and stability to a retirement income plan, especially given the surprises that may come at retirement.”

Claiming Social Security is an important part of your retirement income plan, but it can be challenging to understand your options—and the implications to your savings. Social Security can form the bedrock of your retirement income plan. That’s because your benefits are inflation-protected and will last for the rest of your life in retirement.

While it’s true that your monthly benefit checks will increase if you delay retirement until FRA, you’re not likely to get more money altogether by waiting. The whole reason early retirees get smaller checks while those who delay benefits get larger checks is so that the average person gets the exact same amount of money from Social Security during their lifetime.

Most Americans claim their benefits at age 62 or just a few years later, according to SSA. That’s not always a mistake. If they have done a good job of analyzing their situation. Claiming at 62 would reduce your monthly checks, but you would have an additional four to five years of income before you reach full retirement age. Based on the Social Security Administration’s life expectancy tables and projected inflation rates, the lifetime expected total benefits are within a few hundred dollars of each other, regardless of when you claim.

If you have a robust retirement fund and don’t necessarily need the extra money from Social Security, there’s no harm in claiming early, according to Motley Fool. Moreover, if you have reason to believe you may not live very long in retirement, you may want to claim earlier to make the most of your benefits.

Bottomline, Social Security is part of the retirement plan for almost every American worker. It provides replacement income for qualified retirees and their families.

Your decision about when to file for Social Security benefits will affect your income in retirement. However, if you’re worried about outliving your savings, delaying benefits might be one of the best retirement decisions you’ll ever make.

References:

Maximizing Your Social Security Benefit

Posted on August 9, 2021 by admin

The highest Social Security benefit you or any retired American can collect at age 70 in 2021 is $3,895 a month.

The most an individual who files a claim for Social Security retirement benefits in 2021 can receive per month is:

$3,895 for someone who files at age 70.
$3,148 for someone who files at full retirement age (currently 66 and 2 months)
$2,324 for someone who files at 62.

Full retirement age, or FRA, is the age when you are entitled to 100 percent of your Social Security benefits, which are determined by your lifetime earnings. If you were born between 1943 and 1954, your full retirement age was 66. If you were born in 1955, it is 66 and 2 months. For those born between 1956 and 1959, it gradually increases, and for those born in 1960 or later, it is 67.

It is important to know that:

Claiming benefits before full retirement age will lower your monthly payments;
You can increase your retirement benefits by waiting past your FRA to retire up to age 70.

To be eligible for the maximum benefit, your earnings must have equaled or exceeded Social Security’s maximum taxable income — the amount of your earnings on which you pay Social Security taxes — for at least 35 years of your working life. The maximum taxable income in 2021 is $142,800.

The maximum taxable earnings is the limit on the amount of your earnings that is taxed by Social Security. The maximum earnings that are taxed has changed over the years. If you’ve earned more than the maximum in any year, whether in one job or more than one, Social Security Administration only uses the maximum to calculate your benefits.

#SocialSecurity Basics: 12 Things You Must Know About Claiming and Maximizing Your Social Security Benefits | Kiplinger https://t.co/VzpyFV4C0H

— Kiplinger (@Kiplinger) April 24, 2021

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When to Claim Your Social Security Benefits

Posted on July 15, 2021 by admin

WAITING TO CLAIM SOCIAL SECURITY WILL MAXIMIZE YOUR LIFETIME BENEFIT

If you claim Social Security at age 62, rather than wait until your full retirement age (FRA), you can expect up to a 30% reduction in monthly benefits.
For every year you delay claiming Social Security past your FRA up to age 70, you get an 8% increase in your benefit. So, if you can afford it, waiting could be the better option.
Health status, longevity, and retirement lifestyle are 3 variables that can play a role in your decision when to claim your Social Security benefits.

You can start claiming Social Security benefits at 62 and it can be tempting to take the money and run as soon as you’re eligible. After all, you’ve been paying into the system for all of your working life, and you’re ready to receive your benefits.

But you will not receive 100% of your benefits unless you wait until your Full Retirement Age of 66 years and 10 months if you reach age 62 during calendar year 2021. And if you wait longer, like until age 70 years young, you can receive even more benefits.

If you start taking Social Security at age 62, rather than waiting until your full retirement age (FRA), you can expect up to a 30% reduction in monthly benefits with lesser reductions as you approach FRA, according to Fidelity Investments. FRA ranges from 66 to 67, depending on your date of birth. And your annual cost-of-living adjustment (COLA) is based on your benefit. So if you begin claiming Social Security at 62 and start with reduced benefits, your COLA-adjusted benefit will be lower too.

Wait to Claim

Health status, longevity, and retirement lifestyle are 3 key factors that can play a role in your decision when to claim your Social Security benefits. Unfortunately, you can not predict your future health status, but you can rely on the simple fact that if you claim early versus later, you will likely have lower benefits from Social Security to help fund your retirement over the next 20-30+ years.

By waiting until age 70 to claim your benefits, you could get the highest monthly benefit possible over your lifetime than if you start claiming at age 62.

And if you are married, you may be eligible to claim Social Security based on your spouse’s earnings. This may mean a significantly higher monthly payment for you if your spouse had a higher income than you during his or her prime earning years.

Basic Benefit Rules

After you reach age 62, for every year you postpone taking Social Security (up to age 70), you could receive up to 8% more in future monthly payments. Once you reach age 70, increases stop, so there is no benefit to waiting past age 70.

Members of a couple may also have the option of claiming benefits based on their own work record, or 50% of their spouse’s benefit. For couples with big differences in earnings, claiming the spousal benefit may be better than claiming your own.

Social Security payments are reliable and should generally adjust with inflation, thanks to cost-of-living increases. Because people are living longer these days, a higher stream of inflation-protected lifetime income can be very valuable.

Social Security can form the bedrock of your retirement cash flow and income plan. That’s because your benefits are inflation-protected and will last for the rest of your life. When making your choice, be sure to consider how long you may live, your financial capacity to defer benefits, and the impact it may have on you and your survivors.

References:

Social Security and Retirement

Posted on July 22, 2020 by admin

Enjoying a comfortable retirement is everyone’s dream. Social Security’s purpose is to help you secure your retirement dream.

According to the Social Security Administration, 9 out of 10 people over age 65 receive Social Security benefits. On average, Social Security counts for about 39% of total income during retirement. Thus, as you can see, Social Security can’t cover all your financial needs and expenses during your retirement years.

Furthermore, Social Security rules and decisions are complex. And, it is a challenging task deciding when to claim your benefits. When claiming benefits, it’s important to determine if it’s more financially beneficial to have income sooner by claiming it at early retirement age or wait as long as possible to receive a bigger benefit.

Social Security is part of the retirement plan for almost every American worker. It provides replacement income for qualified retirees and their families. Social Security replaces a percentage of a worker’s pre-retirement income based on their lifetime earnings. The portion of your pre-retirement wages that Social Security replaces is based on your highest 35 years of earnings and varies depending on how much you earn and when you choose to start benefits. However, you can becoming eligible for Social Security benefits in retirement working for only 10 years. You only need to accumulate 40 “credits” during your working life, and you can collect up to four credits each year.

The Social Security system works like this: when you work, you pay taxes into Social Security. Social Security Administration (SSA) uses the tax money collected to pay benefits to:

People who have already retired.
People who are disabled.
Survivors of workers who have died.
Dependents of beneficiaries.

The money you pay in taxes isn’t held in a personal account (or lock box) for you to use when you get benefits. We use your taxes to pay people who are getting benefits right now. Any unused money goes to a Social Security trust fund that pays monthly benefits to you and your family when you start receiving retirement benefits.

There are advantages and disadvantages to taking your benefit before your full retirement age. The advantage is that you collect benefits for a longer period of time. The disadvantage is your benefit will be reduced. Each person’s situation is different.

You can start receiving Social Security benefits as early as age 62 or any time after that. However, you are entitled to full benefits when you reach your full retirement age. Full retirement age refers to the age when a person can receive their Social Security benefits without any reduction, even if they are still working part or full time. In other words, you don’t actually need to stop working to get your full benefits. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will increase.

If you start receiving benefits early, your benefits are reduced a percent for each month before your full retirement age. The longer you wait, the higher your monthly benefit will be, although it stops increasing at age 70. Your monthly benefits will be reduced permanently if you start them any time before your full retirement age.

Create a retirement plan

Planning is the key to creating your dream retirement. You’ll need to plan and save for years to achieve your retirement goals. While many factors affect retirement planning, it is important to understand what Social Security can mean to you and your family’s financial future.

On average, retirement beneficiaries receive 35% to 40% of their pre-retirement income from Social Security. As you make your retirement plan, knowing the approximate amount you will receive in Social Security benefits can help you determine when to claim benefits and how much other retirement income you’ll need to reach your goals.

Although the are thousands of options, you can consider the below three basic strategies for claiming Social Security benefits. When and how you file for Social Security can significantly impact your retirement income. You can take Social Security benefits between ages 62–70 but it makes a big difference in the amount of money you get. At 62, you receive 25% less than if you wait for full retirement age. Also, this would affect you down the road since your annual cost of living adjustments will be based on a smaller figure. For those who wait until they are 70, they would receive 32% more than at full retirement age (based on 66 years young).

Full Retirement Age: Full retirement age is the age when you will be able to collect your full retirement benefit amount. The full retirement age is 66 if you were born from 1943 to 1954. The full retirement age increases gradually if you were born from 1955 to 1960, until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67. You can find your full retirement age by birth year in the full retirement age chart.
Early Retirement Age: You can get Social Security retirement benefits as early as age 62. However, your benefit is reduced if you start receiving benefits before your full retirement age. Understand how claiming retirement benefits early will affect your benefit amount.
Delayed Retirement Age: When you delay collecting benefits beyond your full retirement age, the amount of your retirement benefit will continue to increase up until age 70. There is no incentive to delay claiming after age 70.

Types of Social Security Benefits

Social Security offers three distinct types of benefits for retired workers and/or their spouses. In general, claiming strategies for couples will work to intentionally maximize each of the three types of benefits.

Retired Worker Benefit (which is based on his or her own earnings record) – Retirement benefits may be available as early as age 62. Your benefit amount is calculated based on a formula that incorporates your highest 35 years of earnings. If you claim benefits at Full Retirement Age, which varies from 66 to 67 based on your year of birth, you will receive your full benefit, which is known as your “Primary Insurance Amount” (PIA). If you claim early, you will receive a reduced benefit and if you delay, your benefit will be increased by 8% per year (pro-rated by months) of delay up to age 70.
Auxiliary Benefit (which provides a worker’s spouse or children with a benefit once the worker has claimed his own benefit) – The most common Auxiliary benefit for a married couple is the Spousal Benefit. Spousal benefits are generally available to the spouse of a worker who has been married to the worker for at least one year. The amount of the Spousal benefit is 50% of the worker’s Primary Insurance Amount if claimed at Full Retirement Age. Spousal benefits are reduced if claimed prior to Full Retirement Age, but do not increase if delayed past Full Retirement Age. When an individual is simultaneously entitled to both a Spousal benefit and a Retirement benefit, the Spousal benefit is reduced by the greater of the Retirement benefit or if a reduced Retirement Benefit is taken, the PIA.
Survivor Benefit (which provides a surviving spouse or certain other dependents with a benefit after a worker’s death) – The Survivor benefit is unique in that it is based both on when the deceased filed for benefits and when the Surviving spouse claims benefits. For example, if a higher wage earning spouse elects early, then dies, their spouse will be faced with a permanently reduced Survivor benefit, regardless of when they claim. If the higher wage earner delays claiming Retirement benefits, the available Survivor benefit is also increased.

Retirement Earnings Test for Social Security Benefits

You are able to work and receive Social Security retirement, spousal, or survivor’s benefits. However, you may be subject to a reduction in benefits if you haven’t attained full retirement age.

The Social Security Administration (SSA) will withhold benefits during the year in which you work assuming that you provide an estimate to the Social Security office about your expected earnings. If you do not report estimated earnings, the SSA will withhold your monthly payments in the following year until all benefits that should have been withheld are paid in full.

Social Security benefits can be withheld and taxed

Social security (SS) benefits are subject to taxes. For retirees who are still working, a part of their benefit is subject to taxation. The IRS adds these earnings to half of your social security benefits; if the amount exceeds the set income limit, then the benefits are taxed.

In 2020, you are allowed to earn up to $18,240 before benefits are withheld. For every $2 you earn above the exempt amount, $1 dollar will be withheld. This applies to all years leading up to the year in which you attain your full retirement age. During the year you attain full retirement age the exempt amount increases to $48,600 and for every $3 you earn over the exempt amount $1 will be withheld.

Even though your benefits are withheld they are not completely lost. Once you reach full retirement age, your benefits will be increased to account for the number of months that you did not receive a benefit. For example, if your full retirement age is 66 and you filed for benefits at 62 you received a reduction in benefits for taking benefits 48 months early. If 12 payments are withheld due to the earnings test, your benefits will be adjusted at your full retirement age and it will be as if you elected at age 63, or 36 months early.

What SSA considers income

If the retiree earns an income that exceeds the annual earnings limit, then the social security benefits are reduced until they attain the full retirement age. Note that investment income is not included in the annual taxable earnings. The only income involved comprises of wages or a salary earned from self-employment or when working for someone. For people who are self-employed only net earnings count. It is important to note that employee contributions to pension or retirement plans are included in gross wages. Income that is not counted as earnings include:

Government benefits,
Investment earnings,
Interest,
Pensions,
Annuities; and
Capital gains

are allowed to withdraw your Social Security benefits after enrolling.

If you start taking Social Security benefits before full retirement age, you can withdraw your benefits within the first year of claiming Social Security, no matter what your age. You must pay back any money you received; the Social Security Administration then treats it like you never enrolled, and your monthly check can continue to grow until you start taking benefits again.

Early retirement age to claim Social Security benefits is 62. Full retirement age is 66 for people born from 1943 to 1954 and gradually rises to age 67 for people born after that. You’ll earn an extra 2/3 of 1% for each month you delay after your birthday month, adding up to 8% for each full year you wait until age 70.

Every year you delay taking your Social Security benefits after age 62, you get a bump of 8% in your benefit until age 70.

Dependent children under the age of 18 or disabled before age 22 may be able to claim 50% of their living parent’s primary insurance amount (PIA} or 75% of their deceased parent’s PIA.

Social Security earnings are calculated the same way for most American workers The maximum Social Security benefit depends on the age you retire. For example, if you retire at full retirement age in 2020, your maximum benefit would be $3,011. However, if you retire at age 62 in 2020, your maximum benefit would be $2,265. If you retire at age 70 in 2020, your maximum benefit would be $3,790.

Social Security Problems

Social Security is facing funding challenges, largely because people are living longer. Currently, the average 65-year-old American is expected to live approximately 20 more years, so Social Security has to support people for longer.

Also, Social Security works because people currently working pay into the trust fund from which retirees are paid. Over time, the ratio of contributing workers relative to collecting retirees has shrunk. Because people are living longer and the ratio of people paying in has shrunk, the Social Security program will soon stop running a surplus, leading to potential problems down the road.

When you start collecting Social Security benefit checks may not make a significant difference with respect to the total benefits received. The system is designed for those who live average-length lives. This means that the total sum you collect will be roughly the same no matter when you start collecting benefits. Thus, if you delay receiving benefits until full retirement age, you will collect fewer benefit checks than someone who starts collecting smaller checks early.

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