Theres An Annual Social Security Cost
One of the best features of Social Security benefits is that the government adjusts the benefits each year based on inflation. This is called a cost-of-living adjustment, or COLA, and helps your payments keep up with increasing living expenses. The Social Security COLA is quite valuable its the equivalent of buying inflation protection on a private annuity, which can get expensive.
Because the COLA is calculated based on changes in a federal consumer price index, the size of the COLA depends largely on broad inflation levels determined by the government. In 2021, Social Security beneficiaries saw a 1.3% COLA in their monthly Social Security benefits.
The Kiplinger Letter predicted in September that the COLA for 2022 could be 6%, which would be the largest adjustment since 1982. The final COLA for 2022 will be announced on Oct. 13.
Heres what COLAs have been in other recent years:
- 2009: 5.8%
- 2021: 1.3%
I Dont Have Anything Saved What Should I Do
Your options are limited here, but there are moves that may get some Social Security income flowing now while preserving the possibility of higher benefits later.
One strategy is to claim benefits now but suspend them later to accumulate what are known as delayed retirement credits. Lets say our out-of-work 62-year-old claimant finds a new job at 64. When she reaches her full retirement age, she could suspend her benefits and begin accruing delayed credits, calculated from her already reduced benefit. Doing so would add roughly $50,000 to her lifetime benefit, Mr. Meyer said. And if she waits until 63 to make her initial filing and then executes this suspend strategy, the addition to her likely lifetime payout will rise to about $71,000.
You can only suspend once, but it does add an element of flexibility that can result in more cumulative benefits, Mr. Meyer said.
People who gain new employment while receiving Social Security should be aware of one complication here. Its called the retirement earnings test.
If you claim benefits before your full retirement age and keep working, Social Security withholds a portion of your benefits if your earnings exceed certain amounts, a figure known as the exempt amount.
Know Your Social Security Full Retirement Age
First things first:Determine your Social Security full retirement age. For people born between 1943 and 1954, full retirement age is 66. If your birthday falls between 1955 and 1959, it gradually climbs to 67. If you are born in 1960 or later, your full retirement age is 67.
You can claim your Social Security benefits a few years before or after your full retirement age, and your monthly benefit amount will vary as a result. More on that in a moment.
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What Documents Do I Need To Submit
To apply for Social Security Benefit you need the following documents:
- Your Social Security card or a record of your SSN
- Your original birth certificate, a certified copy from the issuing agency, or another kind of proof of your age. Photocopies or notarized copies are NOT accepted.
- If youre not U.S.-born you will need to have proof of lawful alien status or U.S. citizenship. Expired documents, notarized copies, or photocopies are not accepted.
- If you served in the military before 1968, you need to provide a copy of your U. S. military service paper. You can submit a photocopy of this document.
- Self-employment tax return for the previous year and/or a copy of your W-2 form . You can submit a photocopy of this document as well.
You can view the Social Security Checklist For Retirement, Medicare, and Spouses Application here.
If you have applied for Medicare or a Social Security claim, you should have already provided proof of age and/or citizenship. In this case, you may not need to submit proof of age or U.S. citizenship again.
It is recommended to apply for Social Security benefits as soon as you can. If you do not have all the above documents ready, you could still start the application process. Missing documents can be provided later.
If you delay applying for your benefits, you may lose out on receiving them.
When Will You Collect
The SSA calculates your benefit amount at your full retirement age . This depends on the year you were born. FRA by birth year is:
- 19431954: age 66
- 1955: age 66 and two months
- 1956: age 66 and four months
- 1957: age 66 and six months
- 1958: age 66 and eight months
- 1959: age 66 and 10 months
- 1960 and later: age 67
The monthly amount you are eligible to receive at your FRA is considered your full benefit, but it is not your minimum or maximum benefit.
You have the option to file for early retirement as early as age 62. But, you may choose to delay taking your benefits until as late as age 70.
There are many reasons why you might choose to take early retirement or to delay it. That choice has a direct impact on the amount of your monthly payment. If you opt for early retirement, you are choosing a lower monthly payment for the rest of your life. By choosing to delay your benefit to any age between your FRA and age 70, you lock in an increase.
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Gaining Back The Reduction In Benefits From Working
The amounts of early retirement benefits you lose as a setoff against your earnings are not necessarily gone forever. When you reach full retirement age, Social Security will recalculate upward the amount of your benefits to take into account the amounts you lost because of the earned income rule. The lost amounts will be made up only partially, however, a little bit each year. It will take up to 15 years to completely recoup your lost benefits. And remember, none of this readjustment will change the permanent percentage reduction in your benefits that was calculated when you claimed early retirement benefits .
What Does Social Security Breakeven Age Mean
When you elect to take benefits early, you make a permanent choicemeaning that your benefits are reduced over the course of your lifetime, not just until your FRA. Your Social Security breakeven age is the point in your life when the total of those lower benefits comes to equal the total of benefits that you would have received if you had waited to take your benefits at FRA or even later.
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Special Rule As You Approach Full Retirement Age
If you are already receiving your retirement benefits, a special higher earnings limit applies in the calendar year you turn your full retirement age . If you will reach full retirement age in 2021, you can earn up to $4,210 per month without losing any of your benefits, up until the month you turn 66. But for every $3 you earn over that amount in any month, you will lose $1 in Social Security benefits. Beginning in the month you reach full retirement age, you become eligible to earn any amount without penalty.
If you are self-employed, you may receive full benefits for any month during this first year in which you did not perform what Social Security considers substantial services. The usual test for whether you worked substantial services is whether you worked in your business more than 45 hours during the month . In other words, if you work in your business more than 45 hours in a month, Social Security may reduce your benefit.
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Retirement Calculator: When A Husband Dies Does The Wife Get His Social Security
If a retiree dies, the surviving spouse receives the entire benefit of the worker.
Example: The pension benefit of a man is $1,200 a month. His wife has a spousal benefit of $600, as a 50%. The total social security family income is 1,800 dollars a month.
Please note that the price values in the examples given may not be exactly the same for you. As in the example above, you can find out your husband/wifes pension with the social security retirement calculator and calculate half of that wage for yourself.
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Average The Highest 35 Years
The Social Security benefits calculation uses your highest 35 years of earnings to calculate your average monthly earnings. If you do not have 35 years of earnings, a zero will be used in the calculation, which will lower the average. In the table below, the highest 35 years are listed in Column G.
Total the highest 35 years of indexed earnings, and divide this total by 420, which is the number of months in a 35-year work history, to find the Average Indexed Monthly Earnings.
For our example worker, who was born in 1953 and turned 60 in 2013, the highest 35 years of wages total $1,919,040. Divide by 420 to get an AIME of $4,569.
|How to Calculate Your AIME for Social Security Benefits|
List Each Year’s Earnings
Your earnings history is shown on your Social Security statement, which you can now obtain online.
In the table below, sample earnings for a hypothetical worker born in 1953 are shown in Column C. Only earnings below a specified annual limit are included. This annual limit of included wages is called the “Contribution and Benefit Base” and is shown as Max Earnings in Column H in the table.
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Impact Of Inflation On Retirement Savings
Inflation is the general increase in prices and a fall in the purchasing power of money over time. The average inflation rate in the United States for the past 30 years has been around 2.6% per year, which means that the purchasing power of one dollar now is not only less than one dollar 30 years ago but less than 50 cents! Inflation is one of the reasons why people tend to underestimate how much they need to save for retirement.
Although inflation does have an impact on retirement savings, it is unpredictable and mostly out of a person’s control. As a result, people generally do not center their retirement planning or investments around inflation and instead focus mainly on achieving as large and steady a total return on investment as possible. For people interested in mitigating inflation, there are investments in the U.S. that are specifically designed to counter inflation called Treasury Inflation-Protected Securities and similar investments in other countries that go by different names. Also, gold and other commodities are traditionally favored as protection against inflation, as are dividend-paying stocks as opposed to short-term bonds.
Our Retirement Calculator can help by considering inflation in several calculations. Please visit the Inflation Calculator for more information about inflation or to do calculations involving inflation.
Claiming Social Security Benefits At The Right Time Means More Money In Your Pocket Here’s A Guide To Everything From Knowing Your Full Retirement Age To Taking Social Security Spousal Benefits
For many Americans, Social Security benefits are the bedrock of retirement income so maximizing this stream of income is critical.
The rules for claiming Social Security benefits can be complex, but this guide will help you successfully navigate the details. Educating yourself can ensure that you claim the maximum amount to which you are entitled.
Here are 12 essential details you need to know.
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How Much Money Do You Need For Retirement
Arriving at an answer to this question may not be immediately obvious because it depends on several variables related to your retirement objectives. Do you envision your retirement lifestyle costing more or less than what you spend now? If you want to increase the amount of domestic or international travel you enjoy during retirement, you will likely need additional money for these adventures. However, if you want to move into a smaller house or condo to simplify your life after you retire, you may not need as much money on an annual basis as you do now.
It can be helpful to imagine what your expected expenses in retirement might be and develop a retirement budget to estimate the level of income you think you’ll need. Remember to include unexpected costs like taking care of elderly parents, special destination weddings, inflation and potential investment losses. After you have a rough estimate of your retirement budget, you can more accurately determine the percentage of income replacement at retirement, one of the assumptions in our Retirement Savings Calculator. Depending on your situation, a scaled-down lifestyle may need only 80% of your current income, whereas opening an antique store as a brand new business venture could bump that up to 150%.
Calculate My Social Security Income
These days thereâs a lot of doom and gloom about Social Securityâs solvency – or lack thereof. And regardless of whether you think Social Securityâs future is secure, the fact remains that you shouldnât plan on living exclusively off your Social Security benefits. After all, Social Security wasnât designed to make up a retireeâs entire income.
Still, many people do find themselves in the position of having to live off their Social Security checks. And even if you have other income sources in retirement, Social Security can make up a significant part of your retirement income plan. That’s why itâs important to know all the rules surrounding eligibility, benefit amounts, taxation and more.
Do you need help managing your retirement savings? To find a financial advisor near you, try our free online matching tool.
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Canadian Retirement Income Calculator
The Canadian Retirement Income Calculator will provide you with retirement income information. This includes the Old Age Security pension and Canada Pension Plan retirement benefits. To estimate your retirement incomes from various sources, you will need to work through a series of modules. You will then need to compare them to your goal income. It also allows you to see the impact of the changes you make in how you save.
If you are married or living in a common-law relationship, you must each use the calculator separately and compare your results to understand your overall situation. It is also important for couples to know how a partner’s death or the end of the relationship could affect their financial situation.
The calculator’s results are estimates. You should not use them for financial planning.
The calculator does not collect personal information or identifiers.
How Does The Social Security Administration Calculate Benefits
Benefits also depend on how much money youâve earned in life. The Social Security Administration takes your highest-earning 35 years of covered wages and averages them, indexing for inflation. They give you a big fat âzeroâ for each year you donât have earnings, so people who worked for fewer than 35 years may see lower benefits.
The Social Security Administration also makes annual Cost of Living Adjustments, even as you collect benefits. That means the retirement income you collect from Social Security has built-in protection against inflation. For many people, Social Security is the only form of retirement income they have that is directly linked to inflation. Itâs a big perk that doesnât get a lot of attention.
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Working After Full Retirement Age Faq
Retirees may work while collecting Social Security benefits, but those younger than their FRA will be subject to the retirement earnings test .
Under this test, if your earnings exceed a certain limit , you will temporarily forfeit some or all of your benefits. Once you reach full retirement age, your benefit is recalculated and you may receive most of that money back.
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Four Ways Benefits Can Be Increased Or Decreased
There are four ways the starting benefit can be permanently increased or reduced from the PIA calculated at age 62:
- Starting benefits earlyBenefits may begin as soon as age 62, but they are permanently reduced for every month between the onset of benefits and FRA.
- Delaying benefits beyond full retirement ageDelayed retirement credits can permanently increase benefits, and they are awarded for every month between FRA and a later onset of benefits.
- Starting early and continuing to workIf you start benefits before your FRA and keep working, the SSA may deduct the part of your benefits that exceeds a threshold. However, any such deductions are not permanent. When you reach your FRA, the SSA recalculates your benefits and credits back any deductions.
- Continuing to work, periodEven if you dont start benefits early, you can increase your benefits by continuing to work up to any age. Any year in which your indexed earnings are higher than one of your 35 previous highest years will boost your benefits. However, after age 60, you will not receive wage indexing, and after age 62, you will not receive bend point inflation indexing.
All four points are related to your starting Social Security benefits. Keep in mind that when your benefits start, the COLA will increase them annually. If you start benefits at age 66, your PIA automatically increases with the applicable COLAs from the years in which you turn 63 through 66.
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