From Social Security
Social Security benefits
will probably be an important source of income once you retire. The amount
you will receive is based on a number of factors including your earnings
history, the age at which you retire and annual Cost of Living Adjustments
made to payment levels.
The Social Security program limits the amount of earnings subject to the
Social Security tax and then uses that same annual limit in examining
your income to determine your basic benefit level. The benefit level calculation
takes into account your highest earnings years over a 35-year period to
determine your basic benefit. The annual taxation limit and resulting
income limit for the basic benefit calculation is $127,200 for 2017.
If you retire at the normal retirement age, that basic benefit will be
what you receive. If you retire before the normal retirement age, beginning
at age 62, the benefit is adjusted downward. For many years, the normal
retirement age was 65. However, for those born in 1938 or later, the normal
retirement age is gradually increasing to age 67 until it reaches 67 for
people born after 1959.
The amount of the
downward adjustment for early retirement benefits depends on your normal
retirement age and how early you begin receiving the benefits. If your
normal retirement age is 65 (born before 1938) and you start receiving
benefits at age 62, your basic benefit is reduced by 20%. If your normal
retirement age is 67 (born after 1959) and begin receiving benefits at
age 62, your reduction is 30%.
Cost of Living
The Social Security Administration adjusts the payment levels each year
to reflect increases in the cost of living (inflation). The 2015 adjustment
was 1.7% with no cost of living adjustment for 2016 and a 0.3% increase
What does all this
mean for you?
Here are some typical monthly benefits for 2017:
- Maximum benefit
retiring at normal retirement age - about $2,687
- Average benefit
for all retired workers - $1,360
- Average benefit
for an aged couple with both receiving benefits - about $2,260
What should you
First, make sure your Social Security records are accurate. You should
receive a statement each year with your earnings history and an estimate
of what your retirement benefit would be. Review it carefully and contact
a local Social Security office if you find an error.
Finally, note that
Social Security alone will probably not enable you to have the retirement
lifestyle you want. Therefore, you should take advantage of other retirement
plans (employer sponsored plans and IRAs) and save even more.