One of Highest COLAs Ever Announced

October 13, 2022 — It has been four decades since the Social Security COLA (Cost of Living Adjustment) was this high. The government announced the increase today, which came in as widely expected at 8.7%. The rate was calculated on a formula based on current rates of inflation. For a person who gets the average 2022 benefit of $1614/month, that amounts to a $144 monthly increase, or $365 per month for someone earning the maximum benefit at age 70. Last year the COLA was 5.9%

The increased payments will begin this January and are expected to help retirees cope with the high inflation we have seen since the start of the pandemic. While the increases will be appreciated, the Elder Index shows that Social Security benefits only cover about 68% of expenses for a single person who rents their home. So retirees need to have either saved or keep working to maintain their standard of living.

The current estimate is that Social Security’s Trust Funds will be extinguished by 2035, a target which keeps changing based on employment levels and the impact of COLAs. At that time only about 70% of expected benefits will be paid, unless Congress acts, which they show no sign of doing.

On the good news front, the standard monthly Part B premium will drop by $5.20, to $164.90. Since those premiums are deducted from Social Security benefits, that is another small raise in the offing for next year!

June 29, 2022 — More than a few retirees on Social Security turn down work that they would like to do. The concern is that their benefits will be reduced, thus making the effort not worthwhile. To help people understand how work might affect your Social Security benefits, here are the facts to help you decide the best course of action. But the good news first – over the long term, working has no negative impact on your benefits, and might even help.

Reached Full Retirement Age – no problem!

If you have reached your Full Retirement Age (FRA) – 66 if you were born in 1954 or before, gradually reaching 67 for those born in 1960 or later – there is no impact. You can work and earn as much as you want and it will not affect your Social Security benefit in any way.

June 6, 2022 — Social Security Trust Funds are now projected to last one year longer, as outlined in the latest Trustees Report. High employment rates and lower disability claims, it seems, have increased contributions to the retirement fund (OASI).

Thanks to those, instead of the retirement trust fund (OASI) becoming exhausted in 2033, that event has been pushed back to 2034. The disability (DI) fund is now expected to last at least for 75 years, up from 2057. At this time, there is no consensus among experts on the lasting effects of the COVID-19 pandemic. The Trustees currently assume that the pandemic will have no net effect on their long-range projections. The assumptions for their report were determined in mid-February 2022, and they are uncertain regarding the path of the COVID-19 pandemic and the economy in the near-term.

Based on their best estimates, the 2022 reports determine:

April 14, 2022 — As anyone who reads this Blog regularly knows, Topretirements is a big fan of waiting as long as you can before you start to collect Social Security. But that is not to say there aren’t many good reasons to take it early, or at least not wait until age 70. Here are six of them.

You don’t expect to live past 80. The break-even age for collecting early vs. waiting until Full Retirement Age or beyond is often debated, and it differs from men to women. In general, if you don’t expect to live past 80, collecting now is probably a good idea.

You don’t have any other good source of income. If you aren’t working and don’t have another source of income to live on, you don’t have a choice – start collecting your Social Security now.

You don’t have a spouse who might live longer than you. People often overlook what their survivor might get in spousal benefits after you die. If they live a long time you want to make sure they get the highest benefit they can so they don’t end up in poverty. But if you don’t have a spouse, or the one you have has a better earnings record than you do, it might make sense to collect early.

You think you can earn more than 8% with what you collect on Social Security. In some recent years, returns from the stock market have been better than the 8% annual increase you get for waiting from Full Retirement Age to age 70. But given the state of the world, most people would probably not feel comfortable guaranteeing earning more than 8% annually from investing their Social Security benefits.

You can use Social Security to pay down high interest debt. If you have high interest credit card debt it might be a good idea to use Social Security to pay off those loans as soon as you can.

You are pretty sure Social Security won’t be able to pay its obligations. By 2034 or so the SS trust funds will be exhausted and current revenues will be able to fund about 75% of promised benefits. Some people think Congress won’t act in time to keep paying benefits at 100%, so they feel they might as well collect now rather than wait for less. So far Congress has wasted its time in stupid party fights, while completely neglecting Social Security, so maybe that is a good bet.

Bottom line. The right answer to when to take Social Security is complex and depends on your unique situation. Don’t accept anyone else’s pat answer – figure it out for yourself. Please share your thoughts in the Comments section below.

For further reading:
What Is Your Social Security IQ (a quiz)

March 23, 2022 –  A worrying study by the University of Michigan’s Retirement and Disability Research Center found that many workers tend to overestimate how much they will receive in Social Security retirement benefits. That is concerning because that overconfidence has a negative impact on how much people save getting ready for retirement. About half of the survey takers noted that they wished they had done a better job of planning. Note that about half of Social Security recipients rely on it for at least half of their income. The average Social Security retirement benefit in 2022 is $1658 monthly. The maximum is $4194 (for someone who takes it at age 70).

Among the findings in the study:

February 15, 2022 — Everybody knows some things about Social Security, the benefit that changed retirement for the good when it was signed into law in 1935. Unfortunately, some of the items many people think they know either aren’t true, or are just plain wrong. This misinformation could have a serious and negative impact on the decisions they make, and their ultimate retirement well-being. One of the sources used in this article are the results from our 2020 Social Security IQ Quiz , where we looked at the answers that people tended to get wrong the most.

1. How many years you work doesn’t really affect your Social Security benefit that much.

Only 49% of people who took our 2020 quiz got this answer correct. The choices for how many earning years are used to calculate your benefit were 25, 30, or 35 – and the correct answer is that Social Security calculates your benefit on your highest 35 earning years (adjusted for inflation). While that might not seem that important a detail, it is, because every year you had no earnings counts as a zero!

October 13, 2021 — Social Security and Supplemental Security Income (SSI) beneficiaries will receive a record 5.9 percent Cost of Living Adjustment (COLA) for 2022. It is the largest COLA since 1982. The increase is based on the Consumer Price Index (CPI-W) from the third quarter of 2020 through the third quarter of 2021. It translates to a $92 monthly increases for the average Social Security recipient, which will be welcome news to people seeing consumer prices rising all around them because of the pandemic and worldwide shortages. According to the SSA, 37% of men and 42% of women get at least half their income from Social Security.

The maximum taxable earnings (OASI) for 2022 will increase from $142,800 to $147,000 in 2022. The retirement earnings exemption limit increases by $600 to $19,560 ($1 withheld for every $2 dollar over that until Full Retirement Age). In the year someone reaches Full Retirement Age the exemption limit increases by $1,440 to $51,960 ($1 deducted for every $3 over the limit). Here is a link to the Social Security Fact Sheet.

Comments? Do you think the COLA will be enough to offset what you are seeing happen to your budget? Please share your thoughts in the Comments section below.

For further reading:
Overlooking Spousal Benefit Could Leave Him Clipping Coupons

September 8, 2021 — The latest Trustees report for Social Security shows that the COVID-19 pandemic and the 2020 recession are affecting the future of this popular program, but no one is certain exactly how that will play out. One thing the report does lay out is that the Trust Fund will become exhausted in 2033, one year earlier than projected last year.

Given the unprecedented level of uncertainty, the Trustees say there is no consensus on what the lasting effects of the COVID-19 pandemic on the long-term experience might be, if any.

Based on best estimates, the 2021 reports show:

• The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2033, one year earlier than reported last year. At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 76 percent of scheduled benefits.

• The Disability Insurance (DI) Trust Fund, which pays disability benefits, will be able to pay scheduled benefits until 2057, 8 years earlier than in last year’s report. At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 91 percent of scheduled benefits.

So many conflicting currents

The Covid pandemic caused millions of people to lose their jobs, meaning they did not pay into the Social Security system. Many people became disabled, which increased payouts by the Disability Trust Fund. On the other hand, over 650,000 people have died from the virus, so those people will not be around to collect their Social Security (although any survivors will). Immigration numbers are down, which means fewer people are paying into the system. Fertility rates declined in this period of uncertainty, which will have long term effects on the size of the workforce supporting retirees. How all of these factors play out, no one is sure.

Bottom line for lawmakers – do something!

The Trustees report finishes with this stern warning: “Lawmakers have many policy options that would reduce or eliminate the long-term financing shortfalls in Social Security and Medicare. Lawmakers should address these financial challenges as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.” We couldn’t agree more – quit fighting silly political battles and do something about the ticking time bomb that is going to blow up Social Security!

For further reading:
Summary of the Trustees Report

Comments? If you were in charge, what would you do to save Social Security?

April 5, 2021 – Naturally enough, most people concentrate their focus on their own Social Security retirement benefits. If they are careful, they compare the advantages of taking it early (as soon as age 62), waiting to Full Retirement Age (FRA, which is 67 for those born 1960 or later), or hanging in to get the maximum benefit at age 70. While it is great to know your own situation, most people overlook the importance of the benefits that might apply to their spouses. For some couples, particularly where one member earns much more than the other and Social Security will be the major source of income in old age, a bad decision can be disastrous down the road. This article will lay out the issues involved, so people can decide the best strategy for maximizing their Social Security spousal benefits.

There are two different scenarios to consider: spousal benefits while you are both alive, and survivor benefits when you depart this world. Let us take them one at a time.

1. Spousal benefits while you are both alive.

January 9, 2020 – Most of the people who took the new version of our popular Social Security IQ Quiz were able to get a passing score of 60%. But there were 3 questions that many people had a lot of difficulty answering correctly. That lack of knowledge, unfortunately, could cost them significant amounts of money over their lifetimes.

Underestimating your Social Security benefits will cost you money

These were the Social Security questions that most people missed, along with the correct answers and more detailed explanations:

1. How many earning years are used to calculate your Social Security retirement benefit.

Only 49% of quiz takers got this answer correct. The choices were 25, 30, or 35 years – the correct answer was 35 years. While that might not seem that important a detail, it is.