Thursday, September 29, 2022

How Much Will Social Security Be

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The Source Ofand Solution Tothe Problem

How much your Social Security benefits will be if you make $30,000, $35,000 or $40,000

When the current Social Security formula was put in place in 1977, no provision was made for the contingency that economic conditions would be so dire that average wages would fall in any given year. This problem first surfaced in 2009 during the Great Recession. The AWI, however, fell by a relatively small amount, and policymakers chose not to do anything about it. As a result of the COVID-19 pandemic, however, the decline in the AWI is likely to be about four times as big now as it was during the Great Recession.

There is ample precedent for fixing this problem. The first precedent concerns Social Security cost-of-living allowances . As mentioned above, payments in years after beneficiaries first year of retirement are indexed to inflation using a version of the consumer price index . However, under the law, if prices fall in any year, benefits are not adjusted downward rather, they remain the same. The second precedent concerns the Social Security contribution and benefit base, also known as the taxable maximum. The taxable maximum is the dollar amount of annual earnings above which the Social Security payroll tax does not apply. The taxable maximum is indexed to the AWIbut like COLAs, it is never adjusted downward.

Claim That Politicians Exempted Themselves From The Tax

Critics of Social Security have said that the politicians who created Social Security exempted themselves from having to pay the Social Security tax. When the federal government created Social Security, all federal employees, including the president and members of Congress, were exempt from having to pay the Social Security tax, and they received no Social Security benefits. This law was changed by the Social Security Amendments of 1983, which brought within the Social Security system all members of Congress, the president and the vice president, federal judges, and certain executive-level political appointees, as well as all federal employees hired in any capacity on or after January 1, 1984. Many state and local government workers, however, are exempt from Social Security taxes because they contribute instead to alternative retirement systems set up by their employers.

Are Social Security Benefits Taxable

If you have a lot of income from other sources, up to 85% of your Social Security benefits will be considered taxable income. If the combination of your Social Security benefits and other income is below $25,000, your benefits wonât be taxed at all. The amount of your benefits that is subject to taxes is calculated on a sliding scale based on your income. Money that Social Security recipients pay in income taxes on their benefits goes back into funding Social Security and Medicare.

If your retirement income is high enough that your benefits are taxable, how do you pay those benefits? You can ask Social Security for an IRS Voluntary Withholding Request Form if youâd like the government to withhold taxes from your Social Security benefits. Otherwise, youâre expected to file quarterly tax returns to pay these taxes over the course of the year.

That covers federal income taxes. What about state income taxes? That depends. In 13 states, your Social Security benefits will be taxed as income, either in whole or in part the remaining states do not tax Social Security income.

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When Will I See The Additional Cola Money In My Social Security Check

The COLA goes into effect with December benefits, which are paid in January. An initial 8 million SSI beneficiaries started receiving the increase on Dec. 30, 2021, but the remaining recipients will see the additional funds this month.

Social Security payments are made on Wednesdays, following a rollout schedule based on the beneficiary’s birth date: If you were born from the 1st through the 10th of the month, your benefits are paid on the second Wednesday of the month and your first increase will appear on your Jan. 12 check.

If your birthday falls between the 11th and 20th of the month, your checks are paid on the third Wednesday, and you’ll see your first COLA increase on your Jan. 19 check.

Those born between the 21st and end of the month receive benefits on the fourth Wednesday, which is Jan. 26 this month.

Calculating Average Indexed Monthly Earnings

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The caveat to calculating an average of a workers highest 35 years of historical earnings is that in the distant past, earnings were typically lower not just because the worker might have been earlier in his/her career, but simply because inflation lifts average wages over time . For instance, the chart below is an example of one worker’s hypothetical historical earnings, with a high point in the early years but in general a slow upward trend to earnings over time.

Accordingly, when Social Security determines the 35-year average of earnings, it first inflation-adjusts those earnings into current dollars using the National Average Wage Index. Technically, this is done by inflation-indexing all historical earnings into a base year that was 2 years before the individual turned 62 and first became eligible for benefits. Thus, a 62-year-old in 2016 will have historical earnings inflation-adjusted to the 2014 wage index in general, Social Security benefits are indexed to wage levels 2 years before becoming eligible at age 62, which means indexed to the individuals age 60. This ensures that benefits based on historical average wage calculation isnt indirectly reduced simply due to the fact that wage inflation hadnt yet occurred in the past.

Once inflation-adjusted earnings have been calculated throughout all the working years, its possible to determine which were the highest 35 years of earnings that will be included in the Social Security benefits calculation .

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Congress Must Act Sooner Rather Than Later

In theory, the AWI problem could be fixed anytime before 2022, when, for example, workers who turn 60 this year are first eligible to retire at the age of 62. But that delay would cause significant anxiety for these workers, whose future benefits would be at risk. Moreover, people decide when to retire based on projections of their incomes in their initial year of retirement and in the remainder of their lives. It would be most unfair to workers decision-making processes to have the expectations of their future incomes be uncertain for some period of time while they are trying to make such an important decision.

Congress needs to act sooner rather than later to ameliorate this problem. One possibility would be to include a fix in the stimulus legislation to cope with the economic effects of the COVID-19 pandemic that Congress is currently considering.

Out Of Sight Out Of Mind

I have to confess that I dont think too much about income taxes. I didnt think about them too much before I retired either except to consider whether a Roth conversion for some of our savings in a traditional IRA would make sense for us .

Yet, I sometimes think I should have given it more consideration before I retired and come up with ways to generate more tax-free income in retirement. Still, other than Roth conversions, there arent many other options that dont involve insurance products like permanent life and non-qualified annuities .

My wife and I are receiving SS benefits, and those combined with withdrawals from our IRA are the money we live on. I dont have taxes withheld from our SS payments, but the Feds take out our Medicare Part B premiums. However, every time I withdraw money from my taxable IRA account, I set aside at least 15 to 20 percent for state and local taxes. Fidelity withholds those sums for me and reports them on a 1099 at the end of the year.

I know I have to pay taxes, and I should do so cheerfully and with gratitude , but it stings a little because, for every $1.00 that I withdraw, I can only spend 80 to 85 cents of it.

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Does Social Security Pay For Life

Yes, Social Security benefits are paid for life once they begin. Disability payments continue as long as the person is considered disabled. In some cases, family Social Security benefits allow spouses or dependents of deceased workers to receive benefits. Childrens benefits may also pay up until the child reaches age 18.

Restrictions On Potentially Deceptive Communications

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Because of the importance of Social Security to millions of Americans, many direct-mail marketers packaged their mailings to resemble official communications from the Social Security Administration, hoping recipients would be more likely to open them. In response, Congress amended the Social Security Act in 1988 to prohibit the private use of the phrase “Social Security” and several related terms in any way that would convey a false impression of approval from the Social Security Administration. The constitutionality of this law was upheld in United Seniors Association, Inc. v. Social Security Administration, 423 F.3d 397 , cert den 547 U.S. 1162 126 S.Ct. 2346 .

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At What Age Is Social Security No Longer Taxed

At 65 to 67 years of age, depending on your year of birth, you are of full retirement age and can receive full pension benefit from Social Security tax-free.

Is Social Security taxed after age 72?

No taxpayer, regardless of income, has taxed all of their social benefits. The top level is 85% of the total benefit.

Do you have to pay taxes on Social Security after age 70?

Heres the reason: Every dollar you earn above the 85% threshold will result in 85 cents of your benefits being taxed, plus you will have to pay tax on the extra income. After 70 years, there is no longer any increase, so you have to claim your benefits, even if they become partially taxable.

What Is The Max Ss Payment

The highest amount that a person who submits a claim for pension benefits from social security in 2021 can receive per. month is: $ 3,895 for a person submitting application at age 70. $ 3,148 for a person submitting full retirement age . $ 2,324 for a person filing at 62.

What is the maximum social security benefit at the age of 67? For a person retiring in 2020 at full retirement age , the maximum social security benefit is $ 3,011 per year. month.

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Is My Social Security Income Taxable The Quick Answer

According to the IRS, the quick way to see if you will pay taxes on your Social Security income is to take one half of your Social Security benefits and add that amount to all your other income, including tax-exempt interest. This number is known as your combined income .

If your combined income is above a certain limit , you will need to pay at least some tax.

The limit is $25,000 if you are a single filer, head of household or qualifying widow or widower with a dependent child. The limit for joint filers is $32,000. If you are married filing separately, you will likely have to pay taxes on your Social Security income.

How Does The Increase In Social Security Benefits Compare With Inflation

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While the 5.9% increase is the highest in 40 years, it’s still not keeping pace with inflation, which rose 6.8% between November 2020 and November 2021.

“We are still going to see this tremendous problem with prices increasing faster than the COLA,” Mary Johnson, Social Security and Medicare policy analyst for the Senior Citizens League, told CBS News. “So, retirees, anybody living on a fixed income, need to be aware that the 5.9% may look like a bigger increase than we’ve ever gotten,” she said, “But once they go through their household budget, they will realize it still won’t pay for all the increasing bills.”

Johnson told CBS News she expected inflation to continue to grow in 2022. Also this year, the standard cost for Medicare’s Part B is jumping 14.5% to $170.10, according to the Centers for Medicare & Medicaid Services, representing an increase of $21.60 per month. And the annual deductible for Medicare Part B beneficiaries is now $233, an increase of $30 from 2021.

According to the CMS, the increases are due to rising prices and utilization across the healthcare system, as well as the possibility that Medicare may have to cover high-cost Alzheimer’s drugs like Aduhelm.

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Why Do We Have To Pay Taxes

SS has been running on fumes for a while now. And back in the 1980s, Congress passed legislation to try to shore it up. One of the more controversial additions to the Amendments of a 1983 bill was taxing Social Security benefits, which the government officially implemented in 1984. It was intended to only impact upper-income senior households, and its purpose was to help raise additional revenue and avoid reducing retiree benefits.

It has been pretty unpopular ever since.

If most of our income came from Social Security, we probably wouldnt owe any tax. Thats good news and bad, of course. It would be nice not to have to pay taxes but perhaps not so good that wed have little more than Social Security to live on. I think its better to have a little more than just Social Security, even if I have to pay taxes on it. Of course, the more income other than SS we have, the more taxes we will have to pay.

We have to pay taxes because, 1) Most of our SS benefits are taxable due to income from savings that pushes our total income over certain limits, and 2) The money I withdraw from savings is taxable whether we owe taxes on our SS benefits or not.

Almost any form of income in addition to SS benefits except Roth IRA distributions would push us over the limits, but these are the most common ones:

  • Large IRA account balances
  • Large taxable account balances
  • Large investments in municipal bonds
  • Pensions
  • Employment
  • Inflation

You’re Enrolled In Medicare

Not everyone who collects Social Security is a Medicare enrollee. Medicare eligibility begins at age 65, whereas you can file for Social Security as early as age 62. Plus, you can collect Social Security even if you’re still working. And if you’re still working, you may still have access to a group health plan that makes enrolling in Medicare unnecessary.

Still, many seniors on Social Security are Medicare enrollees and therefore have their Part B premiums deducted from their monthly benefits. Next year, Medicare Part B costs are rising substantially. The standard monthly premium is set to increase from $148.50 to $170.10. That’s a jump of $29.60. And that’s also a figure you’ll need to subject from your upcoming COLA.

So, let’s say you collect the average monthly benefit of $1,565. After applying a 5.9% COLA, your benefit rises by $92. But when we subtract $29.60, you’re left with a $62.40 raise instead.

Now to be clear, a $62.40 bump is still pretty significant in the context of Social Security. But unfortunately, much of that remaining money could easily get eaten up by higher food and fuel costs, which consumers of all ages are grappling with now.

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Raise In Social Security Wage Base

Social Security payments to retirees are primarily funded by taxes on existing workers. However, workers are only taxed on a portion of their wages, known as the Social Security wage base. Just like the annual COLA, the Social Security wage base is subject to annual changes. For 2022, the wage base is $147,000, up significantly from 2021s $142,800. This means that workers will pay Old Age, Survivors and Disability Insurance tax of 6.2% on the first $147,000 of their wages only. Earnings above that are tax-free for Social Security purposes.

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Spouse’s Benefit And Government Pension Offsets

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The spouse or divorced spouse of a retirement beneficiary is eligible for a Social Security spouse benefit if the spouse or divorced spouse is 62 or older. The benefit amount is equal to 50 percent of the retirement beneficiary’s Primary Insurance Amount if the spouse claims the benefit at the full retirement age or later. If a person is eligible for both a retirement benefit based the person’s own work in Social Security covered employment and a spouse benefit based on a spouse’s work in covered employment, SSA will pay a total amount approximately equal to the higher of the two benefits. For example, if at the full retirement age, a spouse claims a retirement benefit of $300 and a spouse benefit of $450, SSA will pay the person a $300 retirement benefit and a $150 dollar partial spouse benefit for a total benefit of $450.

A spouse is eligible after a one-year duration of marriage requirement is met and a divorced spouse is eligible for spousal benefits if the marriage lasted for at least ten years and the person applying is not currently married. Payment of benefits to a divorced spouse does not reduce the Social Security benefits of the retired worker or family members of the retired worker, such as the worker’s current spouse. A divorced person can claim spousal benefits once the former spouse is eligible for retirement benefits, regardless of whether the former spouse has claimed those retirement benefits.

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