Social Security Statements Are Getting a Revamp: What It Means for You

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The Motley Fool 17 July, 2021 - 08:18am 16 views

It’s not a new discovery that Social Security income will fall short of scheduled benefit. But there’s no need to overreact.

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With a rapidly growing aging population, securing Social Security funds is now more crucial than ever. But how did we get here in the first place? USA TODAY

Come 2034, incoming revenues will be enough to pay about 76% of scheduled Social Security benefits, a 2020 Social Security Administration trustees report predicts.

Given that, how might different generations plan for this? Should they plan for a 24% decline in their scheduled benefit? Should they not factor Social Security benefits into their retirement income plan at all? Or might they do something else.

“Though I think it far more likely that some combination of reforms will eliminate the need for cuts of the magnitude the trustees report suggests, people should be aware of the impact a cut would have on their overall financial situation,” says Joe Elsasser, a certified financial planner and president of Covisum.

What are some of those reforms? Tax increases, benefit cuts or a combination of both are the oft-mentioned reforms. But to date, there seems little to no interest on the part of lawmakers to tackle the coming shortfall between incoming revenue and scheduled benefits.

What to do then? “The implications with Social Security’s solvency tend to fall on generational lines,” explains Marcia Mantell, a principal with Mantell Retirement Consulting. 

She agrees with Elsasser that Social Security beneficiaries and would-be beneficiaries ought to consider the following actions:

“Baby boomers should plan for benefits as they are projected, but stress test for a benefit cut.”

Social Security benefit estimates for those born 1946 through 1964 should be on target and will be unlikely to be reduced if Congress fails to put a solution in place to shore up the reserve account within the overall trust fund, or fails to increase payroll taxes to support the commitments made to these retirees, says Mantell.

Elsasser agrees but suggest taking some precautionary measures. “Baby boomers should plan for benefits as they are projected, but stress test for a benefit cut,” he says. “Historically benefit cuts have been phased in over time.”

For instance, the last solvency crisis of this magnitude occurred in 1983. “And some of the reforms that were put in place are still being phased in today, such as the increase in full retirement age from 65 to 67,”  Elsasser notes.

According to Elsasser, stress testing allows you to practice what you would change in your plan if the full cut materializes. “If the cuts to your plan are too painful to bear if they do materialize, then make smaller changes now and monitor the situation,” he says. “Smaller cuts to your lifestyle sooner will hurt less than larger ones later.” 

Covisum has a benefit cut calculator that allows consumers to identify how benefit cuts would impact their break-even ages.

“You have time on your side, and every $1,000 or $2,000 or $5,000 you can sock away now will increase your income for retirement and balance out the trade-offs that you may have to make.”

If you were born 1965 through 1980, planning for your retirement income becomes more important than ever, warns Mantell.

Elsasser recommends planning on a 10% reduction in your Social Security benefits and doing retirement projection that includes a reduced Social Security amount to balance your lifestyle today with the lifestyle you’d like to live in retirement. 

The good news about this bad news? “For the 65 million of you who are between the ages of 41 and 56, you are in your peak earnings years,” says Mantell. And that means you can and will need to ramp up your personal savings.

“You’ll be well-served to rethink, rebudget and redesign your spending and your savings strategy in case Social Security delivers less in income than currently projected,” she cautions. “You have time on your side, and every $1,000 or $2,000 or $5,000 you can sock away now will increase your income for retirement and balance out the trade-offs that you may have to make.”

And what’s the worst-scenario if you ramp up your savings and there’s cut in Social Security benefits? “You end up with more than you need,” says Elsasser.

“Though it’s important for everyone, particularly if you are under 40, your focus should continue to be on improving your skills, education and training in order to maximize your earnings potential through your peak earnings years.”

Experts say it’s too early for millennials and Gen Zers to worry about Social Security cutting benefits. 

“You are too young to confidently guess how Social Security will pay benefits,” notes Mantell. “Half of you don’t even yet have your 40 credits for eligibility. So, your focus will be well-served to be on you.” 

Elsasser shares that point of view: “Though it’s important for everyone, particularly if you are under 40, your focus should continue to be on improving your skills, education and training in order to maximize your earnings potential through your peak earnings years,” he advises. “Saving consistently in vehicles you won’t touch until retirement is important as well. At minimum, be sure to take advantage of any company matches or incentives.”

“Any fear-mongering headlines serve no purpose other than to upset 100 million or more people trying their best to figure out retirement planning."”

 All this planning for a potential cut in benefits might be much ado about nothing, according to Michael Finke, a professor at the American College of Financial Services.

“I don’t know any expert in Social Security who believes that Congress will allow a significant cut to beneficiaries,” he says. “Politicians face a no-win situation where making changes today to shore up Social Security is painful, because it will either mean higher taxes or lower benefits, but the alternative to making no changes is worse – having a big block of voters see a cut in their retirement income.”

And this, he predicts, will motivate Congress to increase payroll taxes, increase the claiming age or change the inflation adjustment.

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Social Security COLA 2022: How Much Will Benefits Increase?

AARP 18 July, 2021 - 07:01am

Social Security beneficiaries could get a 5 percent cost-of-living adjustment (COLA) in 2022, the highest since 2008, due to the recent burst of inflation.

"The COLA will no doubt be higher than it has been for the last decade, probably in the 5 percent or higher neighborhood because of rising prices,” says David Certner, legislative counsel and director of legislative policy for government affairs at AARP.

Any estimates are preliminary, and the actual COLA will depend on changes in prices between July and the end of September. The Social Security Administration typically announces the amount of the annual adjustment, if any, in October. The increase in benefits typically goes into effect in January.

Estimates for the 2022 COLA range from 4.5 percent from Moody's Analytics to 6.1 percent from The Senior Citizens League. Economist Bill McBride, who writes the finance and economics blog Calculated Risk, estimates the 2022 COLA at 5.5 percent.

In contrast, the increase that went into effect in January 2021 was 1.3 percent, or an average of about $20 a month for individuals. A 5 percent increase would boost the average monthly benefit by about $77.

Rising prices in 2021 are the driving force behind the higher COLA estimates. “It's the energy prices that are causing havoc,” says Mary Johnson, Social Security and Medicare policy analyst for The Senior Citizens League. A gallon of unleaded gasoline costs an average of $3.16, up from around $2.20 a year earlier. Oil demand collapsed last year at the onset of the pandemic, and it takes time to ramp up production again. Now, with businesses reopening and people traveling more, demand is growing. Supply just hasn't caught up yet.

"Higher prices reflect the disarray caused by the pandemic,” says Mark Zandi, chief economist at Moody's Analytics. The price of airline tickets, for example, has surged 24.6 percent in the past 12 months ending June 30, as travelers scramble to get seats on flights that had been cut back by COVID-19 restrictions. Used car prices have jumped 45.2 percent in the past year, because the supply of new cars fell sharply during the pandemic. Zandi expects the inflation rate will decline to about 2 percent in 2022 as supply and demand even out.

Nevertheless, higher prices take a significant toll on retirees. Social Security benefits rise only once a year; inflation rose 1.1 percent in June alone. “Those with modest Social Security benefits are the ones who really have trouble,” Johnson says. Other retirees have had to tap more of their savings than they had planned because the Social Security benefit didn't keep up with 2021's hot inflation, she says.

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The actual COLA will depend on the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W, an official measure of the monthly price change in a market basket of goods and services, including food, energy and medical care. The Bureau of Labor Statistics tracks both the CPI-W and its better-known cousin, the CPI-U — the Consumer Price Index for All Urban Consumers — which is a broader measure of retail prices.

The CPI-W rose 6.1 percent over the 12 months ended in June. In October, the Social Security Administration will compare the CPI-W for July, August and September 2021 with the CPI-W for the same period in 2020. The percentage change from last year's third quarter to this year's third quarter will be the COLA amount for the following year.

The COLAs for the past 10 years have averaged 1.7 percent, with increases ranging from zero in 2015 to 3.6 percent in 2011. The most recent year beneficiaries received a COLA of more than 5 percent was in 2008, when there was 5.8 percent increase.

Since Congress initiated automatic annual COLAs in 1975, there have been three years — 2009, 2010 and 2015 — in which benefits didn't increase at all. There is no COLA if inflation stays the same or declines year-over-year. The single biggest increase was 14.3 percent in 1980, which went into effect in January 1981.

Cost-of-living adjustments go into effect in January of the following year. Social Security publishes a complete chart of annual COLA increases.

Social Security is funded by a payroll tax of 12.4 percent on eligible wages — employees pay 6.2 percent and employers pay the other 6.2 percent (self-employed workers pay the entire 12.4 percent). Next year, the maximum amount of earnings subject to the Social Security tax, currently capped at $142,800, will also be adjusted for inflation. The money paid in by today's workers goes to cover current benefits, with any excess going into the Social Security trust fund.

You might not see all of the increase in your benefit payment. If your Medicare Part B premiums are deducted from your Social Security (as is the case with 70 percent of Part B enrollees), a Medicare rate increase could offset all or part of the COLA.

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Seniors on Social Security Could Be in Line for Their Largest Raise in Decades | The Motley Fool

The Motley Fool 18 July, 2021 - 04:04am

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

The monthly Social Security benefit seniors start out collecting isn't the exact benefit they're stuck with for life. That's because those benefits are subject to annual raises, or cost-of-living adjustments (COLAs).

The purpose of COLAs is to help seniors retain their buying power when inflation strikes. Think about someone who's been on Social Security since 1991. The general cost of living has increased substantially over the past 30 years, so it stands to reason that benefits, too, would need to increase to give seniors a chance at keeping up.

The problem, however, is that in recent years, COLAs have been notoriously stingy. In 2021, seniors got a 1.3% raise. The year before, their benefits were bumped up by 1.6%. In fact, since 2010, the largest annual raise seniors got was a 3.6% boost in 2012. But in both 2011 and 2016, seniors got no COLA at all.

The coming year, however, is shaping up to be different. Based on recent inflation data, the nonpartisan Senior Citizens League is estimating that seniors could be in line for a whopping 6.1% COLA in 2022. Not only would that constitute their largest raise since 1983, but it would also surpass the 5.3% projection the Senior Citizens League put out a month ago.

Tiny COLAs have been hurting seniors for years and causing them to lose buying power. Why have COLAs been so minimal? The reason boils down to how they're calculated.

COLAs are based on third-quarter inflation data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). When the index indicates that the cost of common goods is rising, Social Security benefits get a boost.

The problem, however, is that the CPI-W isn't reflective of the expenses that cost seniors the most. Take healthcare, for example.

The cost of medical care has risen substantially over the years, and it's also something seniors are likely to spend a large chunk of their income on. But the CPI-W isn't centered on healthcare expenses. Rather, it's influenced by fluctuations in the cost of things like gasoline, which seniors may spend some money on, but not to the same extent as workers.

This year, inflation has been hitting a lot of people's wallets as the demand for consumer goods has increased and supply chains have been slow to catch up. While we don't yet have third-quarter data from the CPI-W, based on recent months' data, it's fair to assume that next year's Social Security COLA will, in fact, be substantial.

But is that a positive thing? While getting more money is good for seniors, inflation is hurting them just as it's affcting their younger counterparts who are still working. The only difference is that many seniors are on more of a fixed income and have only their Social Security benefits to pay their living expenses. So when the general cost of living goes up, as has been the case over the past few months, they tend to struggle.

As such, while it's okay to celebrate a larger COLA in 2022, seniors will also need to prepare to manage that money wisely and stretch it as far as possible. This especially holds true for those who don't have retirement savings to fall back on.

While the recent surge in consumer prices will hopefully be temporary in nature, some experts warn that we could be looking at higher living costs for a solid eight to 10 months. That's something Social Security beneficiaries need to gear up for -- no matter how generous their raise is next year.

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How Will Your Social Security Stack Up to the $3,895 Max? | The Motley Fool

Motley Fool 17 July, 2021 - 11:01am

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The maximum amount that an individual could possibly collect from Social Security this year is $46,740. That would probably be enough to cover some people's annual retirement expenses in their entirety. But very few retirees will be lucky enough to receive the maximum $3,895 monthly Social Security benefit. Doing so requires both strategic planning and a high-salary career during most of your working years.

Below, we'll look at precisely what it takes to earn the maximum Social Security benefit, and what you can do during your working years to boost the size of your monthly checks.

Your Social Security benefit calculation consists of two parts. The first calculates your standard benefit based on your average indexed monthly earnings, or AIME. The second part involves calculating your monthly benefit based on the age you are when you sign up for benefits.

The Social Security Administration starts by considering your income during your 35 highest-earning years. For those who haven't worked at least 35 years, it looks at your income during all the years you did work. Each year's figure is multiplied by an indexing factor to adjust it for inflation, and then all those numbers get added up. That sum is divided by 420 -- the number of months in 35 years -- to get your AIME.

Notably, your AIME calculation only factors in the income that you paid employment taxes on -- and there's a yearly cap on that figure. In 2021, it's $142,800. If you earn income above that amount this year, you won't pay wage taxes on it -- but that higher income also won't raise your eventual Social Security benefits any further. 

In order to get the highest AIME possible, you'd have to earn the equivalent of $142,800 per year -- or $11,900 per month -- in 2021 dollars for at least 35 years. That goal is entirely out of reach for most people. 

Once it has determined your AIME, the government enters it into the Social Security benefit formula. The 2021 benefit formula looks like this:

The $996 and $6,002 figures listed above are "bend points." These change from year to year, but those are the ones that apply in 2021.

Astute readers may notice that plugging the current maximum AIME of $11,900 into the above formula leaves you with $3,383, not $3,895. There are two reasons for that. 

First, the formula used in your Social Security benefit calculation is based on whatever the bend points were in the year you turned 62, regardless of when you actually sign up. So the formula listed above will only apply to individuals born in 1959 who turn 62 in 2021. Individuals born in other years will use formulas with different bend points.

The other reason you won't get $3,895 if you plug the maximum AIME into the above formula is that it's only part of your Social Security benefit calculation. The next steps are outlined below.

The government uses the above formula to calculate your benefit at your full retirement age (FRA). That was 66 for those born between 1943 and 1954. Then, it rises by two months every year thereafter until it reaches 67 for those born in 1960 or later. But you don't have to wait until you reach your FRA to start taking your benefits.

You can sign up for Social Security as soon as you turn 62, but you'll receive smaller checks every month if you do. For every month you claim benefits before your FRA, your benefit decreases in the following way:

Those fractions of a percent add up. Someone with an FRA of 67 will only receive 70% of their "full" benefit per check if they sign up when they turn 62. Specifically, they would lose 5/12 of 1% per month for the two years between their 62nd and 64th birthdays (24 months times 5/12 of 1% = 10%), then 5/9 of 1% per month for the 36 months between 64 and 67 (36 months times 5/9 of 1% = 20%).

If you want larger monthly Social Security checks, you can also delay benefits past your FRA. Every month you postpone claiming beyond that point increases your benefit by 2/3 of 1% until you reach the maximum benefit at 70. That's 124% of your full benefit per check if your FRA is 67 or 132% if your FRA is 66.

In order to claim the maximum $3,895 monthly Social Security benefit, you must not only earn the maximum AIME, but also delay taking your benefits until you turn 70.

However, waiting that long to claim Social Security is not financially feasible for everyone, and it's not always wise. If you don't expect to live past your 70s, you'll get more out of the program by applying for benefits early.

While relatively few people will have any chance to qualify for the maximum Social Security benefit, most of us can put the principles above into practice to help earn the largest monthly benefits possible. Try these tips:

If doing all the math yourself doesn't appeal, the government has a tool to help you. To make use of it, start by going to the SSI website and creating a my Social Security account. This will allow you to see a record of all the income you've paid Social Security taxes on thus far. The website also features a benefits calculator that enables you to explore what your monthly benefit might be down the road, depending on when you claim it and your average annual income.

You can manipulate the variables to play around with different scenarios, and use the results to come up with a plan for when you want to claim Social Security. That doesn't have to be set in stone, but it can help you estimate how much you'll get from the program and, consequently, how much you'll need to save on your own for retirement.

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1 Great Reason to Claim Social Security at 62 | The Motley Fool

The Motley Fool 17 July, 2021 - 07:15am

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When it comes to your retirement, one of the biggest decisions you'll make is what age you begin claiming Social Security benefits.

The earliest you can begin claiming is age 62, but you can also claim at any age after that. The advantage of delaying benefits is that you'll receive more each month the longer you wait. By waiting until age 70 to file, you could earn up to 32% more in addition to your full benefit amount.

However, while you'll receive smaller checks by claiming earlier in life, there's one important reason to consider claiming at age 62.

Claiming benefits at age 70 may seem like the logical choice. You could potentially earn hundreds of dollars more per month in benefits, and you may be able to enjoy a more financially secure retirement.

That said, by waiting to claim benefits, you're giving up one of your most valuable resources: Time.

By claiming benefits at 62, you will receive smaller checks than if you'd delayed filing. But you'll also have more time to enjoy your retirement when you're still relatively young and healthy. If you have big plans to travel, learn new hobbies, or simply keep up with the grandkids in retirement, claiming Social Security earlier in life can give you more time to enjoy these activities.

Of course, you don't necessarily have to retire and claim benefits at the same time, and it is possible to retire early and wait to claim benefits. However, unless you have a substantial nest egg, it can be tough to pay the bills in retirement without help from Social Security.

One perk of claiming benefits early is that if you change your mind, it is possible to undo your decision. You have 12 months from the time you claim to withdraw your application. You will need to repay all the benefits you've already received, but if you successfully reverse your decision, you can claim at a later date and earn larger checks.

On the other hand, if you delay benefits and later regret your decision, you can't go back in time and claim earlier. And nobody wants to spend their senior years wishing they had more time to enjoy retirement.

Also, even if you're in peak physical condition and expect to live a long and healthy life, you never know when life will throw a curveball at you. If you wait until age 70 to claim benefits and then develop health issues at age 75, you may regret waiting so long to file for Social Security.

There are advantages and disadvantages to claiming benefits at any age. If your retirement savings are lacking and you want to earn as much as possible from Social Security, delaying benefits could be a smart move. You could boost your benefit amount by hundreds of dollars per month, which can help you afford a more comfortable retirement.

If your primary focus is spending as much time as possible in retirement, claiming early may be the way to go. You'll receive less money each month, but that may be a worthwhile sacrifice to spend more years enjoying the activities you love.

The age you claim benefits will depend largely on your personal preferences. Think about your priorities, and then consider which age best aligns with those priorities. Claiming early will require financial sacrifice, but it may be the best retirement decision you'll ever make.

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4 Social Security Strategies to Bankroll Your Retirement | The Motley Fool

The Motley Fool 17 July, 2021 - 05:16am

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Social Security can't be your sole income source as a senior. The benefits simply aren't big enough. But it can go a long way toward bankrolling your retirement if you make smart decisions about your benefits. 

Here are four strategic choices that should lead to the largest possible Social Security checks. 

The more you earn, the larger your future Social Security benefits will be -- up to a point. If you're earning less than the wage base limit (which is $142,800 in 2021), you can raise the size of your future retirement checks by boosting your pay.

See, you pay Social Security taxes on wages up to the wage base limit. Social Security then:

That means higher average wages lead directly to larger benefits.

You can boost your earnings by improving job skills, making sure you're paid what you're worth by negotiating when hired or during performance reviews, or working a second job.   

No matter how many years you work, Social Security benefits are always calculated based on your 35 highest earning years.

If you have a higher (inflation-adjusted) salary at the end of your career than at any earlier point, it can pay to work longer.

For each year you work at that higher earning level, your current larger wage replaces a lower-earning year when your benefits are calculated. If you're earning a lot later in life, you can push out years of lower wages and give your average a big boost. 

Married couples need a joint Social Security strategy. That's because there are dozens of different approaches they could take to claiming benefits.

For example, if only one spouse earned enough to claim Social Security benefits, the other could get spousal benefits -- but only after the spouse with the income starts receiving checks. That higher-earning spouse may decide to claim benefits at a younger age so spousal benefits can begin ASAP. 

Or a higher earner may want to delay claiming their own benefits because doing so would leave more survivor benefits for a widow(er). In that case, the spouse who earned less may want to start their checks first to provide the couple income while the higher earner lets their benefits grow.

In order to get your standard Social Security benefit, you must start getting checks at full retirement age (FRA). Depending on your birth year, this is somewhere between 66 and 2 months and 67. 

You can obviously start sooner than that -- as early as age 62. But early filing penalties apply so you see a permanent reduction in the size of your checks for each month you get benefits ahead of FRA. 

Waiting until at least FRA allows you to avoid reducing benefits -- but you also have the opportunity to increase Social Security checks by waiting until after FRA. For each month until you turn 70, you can earn a delayed retirement credit that raises the amount of your check. 

If you delay as long as you can until 70, you'll get the most income each month. And, you'll probably end up with more lifetime income, depending on whether you outlive your life expectancy. 

By coordinating with your spouse, taking steps to maximize average wages, and waiting to file for benefits, you can get Social Security checks that come a lot closer to bankrolling your retirement.

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A quick COLA catch-up | Federal News Network

Federal News Network 16 July, 2021 - 04:00pm

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Retirees won’t know what their annual cost of living adjustment for next year is until October, when the Social Security Administration makes the announcement.

But that hasn’t stopped anyone in the past from speculating or feverishly tracking the latest Bureau of Labor Statistics data. Especially now, when everything from used cars to lumber prices are driving inflation worries.

Cost of living adjustments, more affectionately known as COLAs, are designed to keep  federal, military and Social Security recipients current with inflation as measured by the Bureau of Labor Statistics Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

Federal retirees haven’t seen a significant COLA in some time, but there are signs that could change in 2022.

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The CPI-W went up another 1.1% last month, and it’s up 6.1% since last June, the Bureau of Labor Statistics said last week.

COLAs are based on a formula set in law, which compares the CPI-W from the third quarter of the current year to the previous year’s third quarter. The latest from BLS could point toward the trajectory of the CPI-W for the next three months.

For what it’s worth, Treasury Secretary Janet Yellen predicted “several more months of rapid inflation” in an interview with CNBC last week.

If that continues into July, August and September, retirees are in for a healthy cost of living adjustment starting next January, at least compared to recent years.

Here’s a quick recap of COLAs over the last decade, according to SSA:

We have to go back to 2009, when retirees got a 5.8% cost of living adjustment, and back to the early 1980s for a COLA that cracked the 5-to-6% range.

Retirees in 1980 got a whooping 14.3% COLA and an 11.2% adjustment the following year. Things didn’t settle down until 1984, when the annual cost of living adjustment dropped to 3.5%.

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I won’t throw out any concrete predictions, but retirees are almost certainly looking at higher COLA than the current year, one that cracks the 2% range, if not 3% or higher,.

That, of course, will prompt diet COLA concerns for some federal retirees.

Remember, those in the Civil Service Retirement System (CSRS) will get the full COLA, whatever the number is.

But if the COLA falls between 2-to-3%, those in the Federal Employees Retirement System will automatically receive a 2% adjustment. If the COLA is anywhere above 3%, FERS participants will receive an adjustment that’s 1% less than the announced cost of living adjustment.

So let’s just say for the purposes of setting an example, SSA announces a 6.1% cost of living adjustment for next year. CSRS retirees will get the whole thing, while FERS participants will see a 5.1% adjustment.

Meantime, a handful of members of Congress have tried for years to take the diet COLA off the menu.

Rep. Gerry Connolly (D-Va.) reintroduced legislation back in January, which would essentially allow CSRS and FERS retirees to both receive the same, full cost of living adjustment each year. He’s introduced similar bills several times in recent years, but they’ve never made it out of the House.

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Others members have proposed changing the COLA recipe altogether.

Rep. John Garamendi (D-Calif.) reintroduced a bill earlier this month that would use the Consumer Price Index-E, for elderly, as the basis for the annual cost of living adjustment.

Both indices track the prices of everyday goods and services, as well as housing, transportation and other costs, but the CPI-E gives greater weight to health care, prescription drug and other medical expenses, factors that, theoretically, may matter more to retirees. The theory is that using this index would lead to higher COLAs for retirees.

Garamendi’s bill has nearly two dozen cosponsors, but the fight for a new COLA formula is a long one, and there’s no clear end in sight.

For now, it’s best to keep an eye on the same old ingredient we use every year to calculate the COLA, and it’ll only grow more interesting in the coming months.

By Alazar Moges

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4 common misconceptions about Social Security that can cost thousands

Yahoo Finance 16 July, 2021 - 09:34am

“What is overlooked is just the very basic fundamentals, which are Social Security and retirement age,” Christian Worstell, content writer for HelpAdvisor.com and report author, told Yahoo Money. “There's a lack of awareness around it.”

Six out of 10 seniors agree that the Social Security program is “difficult to understand and confusing,” while only 12% of seniors disagreed with the statement. That confusion could jeopardize their financial security in retirement.

The survey, which polled 1,000 Americans aged 55 and older, found that there are four common Social Security misconceptions shared by Americans.

Two in 3 Americans incorrectly believe that full Social Security benefits kick in at 65, which is off by as many as two years for some people. The actual qualifying age for full benefits is 66 for people born between 1943 and 1959 and 67 for those born after 1960.

“We've always associated age 65 as that magic age where we retire and we get Social Security and Medicare,” Worstell said. “We all just figure our grandparents retired at 65 and our parents retired at 65, so we're going to, too.”

What people fail to realize is that it’s been 14 years since full benefits came with a 65th birthday and the eligibility age has slowly creeped up over the years. Many “could really be in for a rude awakening” if they thought age 65 was the finish line, Worstell said, and could prompt some to take benefits before they reach full retirement age.

But filing for early benefits means leaving money on the table. Take for instance a 65-year-old who starts collecting Social Security benefits this year, they would only receive 91% of their full retirement benefits amount, missing out on $1,667 in 2021 alone. That means more than $25,000 in lost income if they live another 15 years and more than $50,000 in lost income if retirement lasts 20 years.

“[That’s] a grandchild's college tuition, or the vacation of your life, or it could be medical bills,” Worstell said.

Many Americans have no idea that the Social Security Lump Sum Death Payment is a one-time payment of just $255. Two in five survey respondents thought they would receive at least $500, with 1 in 6 banking on $5,000 or more.

The overestimation from seniors is “understandable,” Worstell said, considering the median cost of a funeral is more than $9,000 and many Americans assume the payout will come close to covering funeral arrangements.

That means some seniors don’t plan for end-of-life expenses through savings or insurance, and may need to turn to crowd-sourcing because they aren’t “adequately prepared for the cost of a funeral,” Worstell said.

One in 3 older seniors incorrectly believe that survivor benefits kick in the month their spouse’s death occurred rather than benefits the month when the survivor files with the Social Security Administration.

Delaying the application for survivor benefits by as little as one month can translate to a loss of nearly $4,000 — if receiving the max benefit— and more than $1,500 for the standard amount. There are also no retroactive payments, so every month post-death is another month of missed income.

More than 1 out of 3 older adults mistakenly believe that Social Security benefits include health insurance coverage.

“We have it burned into our heads that Social Security and Medicare are one and the same,” Worstell said. “While there is a lot of cross-pollination between the two programs, they are separate programs; you have to enroll in Medicare and there's not any actual health insurance coverage included in Social Security.”

Since the programs are separate, Social Security and Medicare enrollment isn’t a two-for-one application process. In fact, Medicare coverage comes with a specific enrollment window and seniors can incur ongoing late penalties for delayed enrollment.

Missing the enrollment window by just 12 months could cost a senior more than $350 per year, the findings showed, depending on their income, which would continue for the rest of their life and increase as Medicare Part B premiums rise.

When it comes to your retirement, one of the biggest decisions you'll make is what age you begin claiming Social Security benefits. Claiming benefits at age 70 may seem like the logical choice. You could potentially earn hundreds of dollars more per month in benefits, and you may be able to enjoy a more financially secure retirement.

The purpose of COLAs is to help seniors retain their buying power when inflation strikes. Think about someone who's been on Social Security since 1991. The problem, however, is that in recent years, COLAs have been notoriously stingy.

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