When Can I See My Cost Of Living Adjustment For 2023
As long as you set up your My Social Security account online by Nov. 15, you’ll be able to see how much your benefits will be increased, Acting Commissioner of the Social Security Administration Kilolo Kijakazi said. In early December, you’ll log in to your My Social Security account and check the message center to see your new 2023 benefit amount.
If you don’t sign up for a My Social Security account, you’ll receive a COLA notice in the mail in December.
Note that your higher Social Security payment will take effect in January 2023. If you’re a Supplemental Security Income beneficiary, your first increased payment will be on Dec. 30.
This Table Can Determine Your Financial Well
As I stated over the summer, the Social Security claiming-age table has the potential to determine your financial well-being in retirement.
The key takeaway between Social Security income and claiming age is that retirees are incented to wait to take their monthly benefit. Depending on their birth year, an eligible retiree could see their monthly benefit grow by as much as 8% per year, up until age 70, for every year they patiently sit on their hands. This means a very wide variance in potential monthly benefit outcomes between the first eligible claiming age and the age where benefits stop climbing .
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Fact #: Most Older Beneficiaries Rely On Social Security For The Majority Of Their Income
Social Security provides the majority of income to most older adults. For about half of this group, it provides at least 50 percent of their income, and for about 1 in 4 older adults, it provides at least 90 percent of their income, according to multiple surveys and the Census Bureau study.
Most retirees have modest incomes, save for some at the top of the income spectrum. Most low-income older Americans have very little pension income, if any, according to the U.S. Census Bureau study. Among retiree households in the bottom third of the income distribution, most received no pension income. About 1 in 4 of these households lived on less than $20,000 in 2015, and about half lived on $50,000 or less, according to an Social Security Administration study that also matches survey and administrative data.
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Create A My Social Security Account
To see all of your Social Security benefits online, you’ll first need to create a My Social Security account. Here’s what to do.
1. Go to ssa.gov on your browser and select my Social Security.
2. Next, click Create an Account.
3. You’ll be prompted to sign in with your ID.me account or login.gov account unless you created an account before Sept. 18, 2021. Note that you’ll need to create one of those accounts if you don’t have one.
4. Once you have an account, you’ll need to agree to the terms of service to continue.
5. Next, you’ll need to verify your identity. The Social Security Administration will send a one-time security code to your email that you’ll need to enter within 10 minutes to continue to your account.
You should now have access to all of your Social Security statements and other details online.
How Social Security Benefits Work
President Franklin Roosevelt signed the original Social Security Act into law in 1935. The current law, after a number of amendments, encompasses several social insurance and social welfare programs, including the issuance of Social Security benefits. Benefits are determined by a specific set of criteria issued by the Social Security Administration .
Payroll taxes under the Federal Insurance Contributions Act or the Self Employed Contributions Act fund Social Security and all of its benefits.
The Internal Revenue Service collects tax deposits and formally entrusts them to the Social Security Trust Fund, which is actually made up of two separate funds: the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund.
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What Does This Mean For Your Social Security Checks
The average Social Security check is expected to jump by $147 in January 2023, from $1,680 to $1,827 per month. That amounts to nearly $22,000 in benefits next year, and some people could see a lot more.
The exact increase you get will depend on the size of your checks today. You can get a rough idea by adding 8.7% to your current Social Security benefit, but the actual calculation for applying COLAs to your benefit is more complicated. The government applies the COLA to your primary insurance amount — the amount you qualify for at your full retirement age . This is between 66 and 67 for today’s workers. Then, it adjusts your benefit up or down as necessary if you claimed Social Security early or late.
The Social Security Administration plans to send out notices to all Social Security beneficiaries in December that will inform them of their new benefit amount for 2023. You can also look yours up in your my Social Security account beginning in early December.
Hopefully your benefit increase gives you a little more breathing room in your budget for next year, but don’t expect too much. These COLAs are only designed to help your checks keep up with rising costs, not to provide you with additional buying power. And some argue that they don’t even keep pace with inflation all that well.
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How Social Security Benefits Are Projected At Retirement
As noted earlier, Social Security benefits are calculated as an income replacement rate based on 35 years of your historical earnings . Which means when youre just getting started in your career as a teenager or 20-something, most of your 35-year average of earnings would be $0s, and any projection of Social Security benefits based on actual earnings would be near $0 in the early years. You wouldnt really know how well your Social Security benefits were on track to replace your income in retirement until you actually had 35 working years to see the cumulative benefit .
Accordingly, the Social Security Administration provides a regular statement to project future Social Security benefits, assuming that you will continue to earn at your current income level . This is shown as your estimated taxable earnings per year after 2017 on the front page of the Social Security benefits statement. And projected benefits on the Social Security statement assume that amount will continue to be earned in every year until full retirement age which can substantially change the individuals historical earnings for calculating benefits .
Example 2. Andrew is a 32-year-old whose income has averaged about $35,000/year over the past 12 years . For the past 2 years, his annual salary is up to $48,000/year.
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What Income Reduces Social Security Benefits
If you start taking Social Security benefits before you reach full retirement age, any income you earn over the annual limit until you reach full retirement age will lower your benefit eligibility for that year. In 2021, if you are retired and haven’t reached full retirement age, the SSA will deduct $1 from your benefits for every $2 earned over $18,960. In the year you reach full retirement age, the SSA will deduct $1 for every $3 earned over $50,520. For the 2022 tax year, these thresholds are slightly higher, at $19,560 and $51,960, respectively.
Calculating The Income Replacement Rate For Social Security Benefits
Although not commonly understood, the calculation of Social Security benefits is really nothing more than an income replacement formula, similar to a pension. Just as a pension might offer an up-to-70% replacement rate based on the average of your last 5 years of wages, Social Security also provides benefits that are a replacement of your earnings based on your years of service. The primary difference is simply that Social Security uses a 35-year average of earnings that accrue based on your years of service , and the replacement rate itself is based on your income .
The individuals 35-year average of earnings is known as AIME Average Indexed Monthly Earnings and is calculated as a monthly average income over 35 years , and is inflation-adjusted . Notably, the lifetime earnings used to calculate the 35-year average of inflation-adjusted income is based on the highest 35 years of historical earnings, regardless of whether they were consecutive years or not.
Replacement rates are then calculated based on the highest-35-year AIME amount with the first $885/month replaced at 90%, the next $4,651/month replaced at 32%, and anything else replaced at 15%.
The final benefit is known as the Primary Insurance Amount , and becomes available to the retiree at Full Retirement Age .
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Will My Social Security Benefits Be Reduced If I Work
A worker who claims benefits before full retirement age may run into the earnings limit, in which Social Security temporarily withholds $1 in benefits for every $2 in earnings above a certain amount in 2021, the limit is $18,960.
And though a person may need benefits to supplement low earnings, the downside of permanently reduced benefits also exists if you claim early, whether or not you exceed the earnings limit, Ms. Floyd said.
A working widow who collects a survivor benefit could also face the earnings limit. A widow can claim a survivor benefit as young as 60, though her benefit will be reduced by claiming before full retirement age. If she is working and exceeds the earnings limit, part of those reduced benefits will be withheld.
The earnings limit also applies to the spousal benefit claimed by a nonworking spouse if the other spouse is working and both are younger than full retirement age. Social Security withholds benefits on total household earnings that exceed the limit.
Withheld benefits are not lost forever, however. At the beneficiarys full retirement age, Social Security will adjust the monthly benefit upward to account for the withheld benefits. The beneficiary will continue to receive the higher payment even after she recoups the withheld benefits, which could take 12 years.
You Can Undo A Social Security Benefits Claiming Decision
There arent many times in life you can take a mulligan. But Social Security offers you the chance for a do-over. Lets say you claimed your benefit, but now regret the decision and wish you had waited. During the first 12 months of claiming benefits, you can withdraw your application. You will have to repay all of the benefits youve received, along with any spousal benefits, but when you restart benefits, youll receive a larger amount, just as you would have if you had delayed filing in the first place.
If it has been more than 12 months since you filed for Social Security, you cant withdraw your application and restart benefits at a later date. But early retirees who have returned to the workforce are not totally out of luck: Once you reach full retirement age, you can suspend benefits until age 70. This will enable you to earn delayed-retirement credits of 8% a year . This can add up to tens of thousands of dollars for many people, says William Meyer, chief executive of Social Security Solutions.
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What Is The Future Of Social Security
As of June 2022, the Social Security Trust Fund is projected to have enough resources to cover all promised benefits until 2035 when, absent a change from Congress, benefits would need to be cut for all current and future beneficiaries to about 80% of scheduled benefits.2 Over the longer term, changes to the full retirement age or means testingâwhich could reduce or eliminate benefits based on your other income sourcesâmay also be considered.
If you’re skeptical about the future of Social Security or wary of potential changes, you may be tempted to start benefits early, assuming that it’s better to have something than nothing. Regardless of your situation, if you are concerned about the future prospects for Social Security, then that’s a good reason to save moreâand earlierâfor your retirement.
Avoid Social Security Tax
If you are planning on supplementing your retirement income by working after you start receiving Social Security benefits, you need to be aware of the tax consequences of increasing your income. Anywhere from 50% to 85% of your benefit payment can be subject to federal taxes.
To determine how much of your benefits will be taxed, the IRS will add your nontaxable interest and half of your Social Security income to your adjusted gross income . If that total amounts to $25,000 to $34,000 for single filersor $32,000 to $44,000 for joint filersup to 50% of your Social Security income is subject to tax. When that amount exceeds $34,000 for a single filer or $44,000 for joint filers, up to 85% of your benefits are subject to taxes.
You may be able to avoid paying taxes on Social Security income by considering ways to spread out your income from various sources so as to prevent any increases that could trigger a higher tax.
“Many investors have a ‘tax honeymoon’ period between retirement and age 72. They have no earned income and are not required to withdraw from their IRAs yet. If they have a nonqualified account, they can withdraw tax-free principal. In this situation, it is quite possible that Social Security benefits will be tax-free,” says James B. Twining, CFP®, wealth manager, Financial Plan, Inc., Bellingham, WA.
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You’ll Get More Money If You Wait To Cash In On Your Social Security
You likely know that if you wait until full retirement age to collect your Social Security benefits, you’ll receive 100% of your benefits. But if you decide to wait until age 70 to retire, you’ll get even more money.
Your benefits will increase by a percentage for each month you delay receiving your benefits past full retirement age up to age 70. If you were born in 1960 or later and wait to start receiving Social Security benefits until age 70, you’ll get 124% of your benefits.
You can get more money if you wait to retire.
How Social Security Could Affect You
During your employment in a SERS-covered job, you do not pay into Social Security or accrue any Social Security benefits. However, most members have worked in one or more jobs covered by Social Security at some point during their lives.
If you are eligible for a Social Security benefit when you either retire with SERS or begin receiving a disability benefit, your Social Security benefit may be affected by federal law regulating Social Security benefits for public employees in non-Social Security states like Ohio. Your Social Security benefit may be reduced by either the Government Pension Offset or the Windfall Elimination Provision .
The federal law does not affect your SERS pension it affects only your Social Security benefit. Your SERS payment would not be reduced because of these Social Security laws. To learn more about the WEP and GPO penalties, read the Social Security Handout.
The following is provided as general information. For more detailed information on the GPO and WEP and how they may affect your specific Social Security benefit, you should contact your local Social Security Administration office, visit the SSA website, or call the SSA toll-free at 1-800-772-1213.
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Retirement Benefits For Your Family
Even if your spouse has never worked outside your home, he or she may be eligible for spousal benefits based on your Social Security earnings record. Children may be eligible as well. Spousal benefits can be as much as 50 percent of your benefit. There are additional options for widows and widowers. The rules vary depending on the situation, so you should talk to a Social Security representative about the options available to you.
Think Of Social Security As An Annuity
“Given todays longevity, it is more important than ever to maximize your Social Security benefit. Think of this as an annuity for your lifetime,” says Charlotte A. Dougherty, CFP®, founder of Dougherty & Associates, Cincinnati, OH.
“Social Security is the only 8% guaranteed investment around. Not only that, it is backed by the federal government,” says David Hunter, CFP®, Horizons Wealth Management, Inc., Asheville, NC.
Although there are many planning options for maximizing Social Security benefits, they can be complex and only apply in certain circumstances. The following five planning tips are ones that everyone should know about in order to increase the size of their Social Security checks.
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Do You Plan To Continue Working In Your 60s
Working in your 60s will help you maximize your income and savings.
Your benefits are based on your highest 35 years of earnings. Each year of work can add higher earnings to your record by replacing years with low earnings such as those when you were a student, were unemployed, or took time off to care for someone. When you work and wait to claim until age 70, you can increase your monthly benefit by more than 75 percent! Working in your 60s also gives you more time to save on your own for retirement.Review your earnings record on my SocialSecurity.
Working in your 60s will help you maximize your income and savings.
Your benefits are based on your highest 35 years of earnings. Each year of work can add higher earnings to your record by replacing years with low earnings such as those when you were a student, were unemployed, or took time off to care for someone. When you work and wait to claim until age 70, you can increase your monthly benefit by more than 75 percent! Working in your 60s also gives you more time to save on your own for retirement.Review your earnings record on my SocialSecurity.
You can maximize your benefits even if you work fewer hours or stop working.
You can maximize your benefits even if you work fewer hours or stop working.
Consider working in your 60s for an extra boost to your income and savings.
Consider working extra years in your 60s for an extra boost to your income and savings