Social Security's 2022 Benefit Hike Is Looking Bigger and Bigger


The Motley Fool 27 June, 2021 - 04:05am 38 views

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Tens of millions of people rely on Social Security  for vital retirement income, and many live largely on the fixed income that Social Security provides. One of the most important aspects of Social Security is that its monthly benefits are adjusted each year for inflation through annual cost of living adjustments, or COLAs.

When inflation levels are tame, as they've been for much of the past decade, Social Security COLAs tend to be small. However, price levels have moved sharply higher recently, and that's putting Social Security in a position in which the COLA that will take effect at the beginning of 2022 could be among the top increases it's given since 1990.

April's inflation report from the Bureau of Labor Statistics put Social Security recipients on notice that their COLA for 2022 might be something special. Yet many dismissed the hefty price increases as being purely temporary in nature.

When the report for May came out earlier this month, therefore, it came as a shock to many. Far from reversing course, prices continued to rise sharply during the month, with a headline rise of 0.6% for the benchmark Consumer Price Index (CPI) number. That brought the CPI's increase over the past 12 months to 5%, a pace not seen for more than a dozen years.

In the past, food and energy prices have often been the culprits behind inflationary pressures, but that hasn't been the case this time around. So-called core inflation, which excludes food and energy, rose at a faster 0.7% rate in May. As we saw in April, sharp increases in prices of used cars and trucks, household furnishings, airline fares, and apparel helped set the stage for heftier inflation numbers.

For purposes of determining inflation adjustments, the key figure to watch was the CPI-W inflation index. That number moved higher by 0.9% for the second straight month in May, rising to 263.612. That's 5.6% higher than it was this time last year.

To figure out the actual COLA, though, the Social Security Administration will need to look at the CPI-W figures for July, August, and September. It will then compare those numbers to the average during the same period in 2020, which was 253.412.

Anything can happen in the coming months, but if price levels don't make any moves in one direction or the other, then current levels would imply a 4% COLA for 2022. There've only been two years since 1990 that had higher COLAs than that.

There's also a significant likelihood that prices will continue to move higher. It would take a lot more upward pressure for the CPI-W to move high enough to match the 5.8% COLA that Social Security recipients got in 2008. However, with the next-highest reading coming in at 4.1% from 2005, it wouldn't take much for 2022's COLA to move into the No. 2 spot looking back more than 30 years.

High COLAs are a mixed blessing for Social Security recipients. To the extent that CPI increases match up with actual higher costs for retirees, the COLA won't necessarily provide greater purchasing power. Moreover, anticipated increases in Medicare premiums could take away a portion of the raise that Social Security recipients actually see in their monthly payments.

Nevertheless, more money from Social Security is always better than less. Those who live on fixed incomes will appreciate adjustments that could end up adding $60 or more to the average monthly Social Security check in 2022.

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Workers Think $1.9 Million Is the Magic Retirement Savings Number. Are They Right?

MSN Money 27 June, 2021 - 01:14pm

Saving for retirement is essential. If you decide to fall back on Social Security alone, you'll potentially subject yourself to years of financial hardship, especially since the average benefit today amounts to just $1,543 a month.

Of course, you're no doubt aware that the more you save for your senior years, the more financial security you'll buy yourself. But how much money should you aim to have socked away?

If you follow the results of a recent Charles Schwab survey, then the answer is "a lot." Those who participated in that survey landed on $1.9 million as the magic retirement savings target everyone should attempt to accrue. But is that the amount you should be trying to save?

The amount of money you end up needing as a senior will hinge on certain factors:

If you spend the last 20 years of your career earning a six-figure salary, and you effectively want the same annual income during retirement, then yes, you may need to aim to sock away $1.9 million, or something in that vicinity.

Similarly, if you plan to lead a lavish lifestyle in retirement -- one that has you traveling extensively, spending your afternoons at the country club, and living it up in an expensive city -- then you may need a $1.9 million nest egg to achieve those goals.

But what if your retirement plans are a lot more modest? What if you know that you'll be happy living in a modest cottage in the woods or in an inexpensive suburb? And what if you plan to spend most of your newfound free time bonding with your grandchildren, gardening, volunteering, and taking inexpensive day trips when you can? If that's the case, then you may not need anything close to $1.9 million for retirement.

In fact, say you're used to living on $50,000 a year right now, and you want the same annual income once you stop working. If you're eligible for the average monthly Social Security benefit, that means about $18,500 a year of income can come from that alone, leaving you to rely on your nest egg to provide a little over $30,000 a year. In that case, an $800,000 retirement savings balance easily gets you to that goal if you withdraw from your nest egg at a rate of 4% a year.

Rather than worry about saving $1.9 million for retirement, a better bet is to think about your personal goals and aim for an ending savings balance that works for you. You may find that saving $500,000 lends to the retirement of your dreams. Similarly, you might manage to sock away $1.9 million for retirement, only to realize that it's not enough to help you meet your goals.

The point, either way, is to use that $1.9 million figure as a point of information only -- not gospel. Keep in mind, too, that the aforementioned survey was conducted among 1,000 Schwab 401(k) plan participants. That's hardly a large sample set in the grand scheme of the U.S. adult population. So it's important to take that $1.9 million figure with a massive grain of salt.

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

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Why I Wouldn't Dream of Claiming Social Security at 62 | The Motley Fool

Motley Fool 27 June, 2021 - 11:02am

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.

I recently celebrated my 30th birthday, so while I certainly feel like I'm getting old, I'm still a long way off from claiming Social Security. I've got about 40 years to go, according to my retirement plan, because I've decided to go for my maximum Social Security benefit. It was a no-brainer for me, but the decision isn't that simple for everyone.

Everyone who's worked for at least 10 years qualifies for Social Security retirement benefits when they turn 62. But if you want the full benefit you're owed based on your work history, you have to wait until your full retirement age (FRA) to sign up. That's 66 for those born between 1943 and 1954. Then, it rises by two months per year for every year thereafter until it reaches 67 for those born in 1960 or later.

The Social Security Administration reduces your checks slightly for every month you claim benefits under your FRA. When you sign up right away at 62, you only get 70% of your full benefit per check if your FRA is 67, or 75% if your FRA is 66. 

You can also delay benefits past your FRA if you want larger Social Security checks. The Social Security Administration increases your benefit every month you delay benefits until you reach 70. At this age, you'll receive 124% of your full benefit per check if your FRA is 67, or 132% if your FRA is 66.

I've chosen to delay Social Security benefits until 70 because I believe it will give me more money overall than starting benefits earlier. It all comes down to my life expectancy. I'm a pretty healthy person, so I think there's a good chance I'll live into my mid-80s or beyond.

Assuming I qualify for the average Social Security benefit -- $1,508 per month -- at my FRA of 67 and live until 85, here's how much I would get per month and overall by signing up at 62, 67, and 70.

Based on this, as long as I live until 85, I stand to get significantly more out of Social Security than I would by starting early.

Of course, the other factor to consider here is whether I'll be able to afford to delay Social Security that long. And I'm fairly confident I can. I've been saving for retirement for a decade now, and I make an effort to set aside at least 15% of my income every year. So I should have plenty of savings to sustain me throughout the early years of my retirement until I'm ready to apply for Social Security.

Delaying benefits until 70 is my plan right now, but as I said at the start of this article, I'm a long way off from claiming age and a lot could happen between now and then. Here are a few things that could cause me to change my plans about Social Security:

When you sign up for Social Security is an individual decision. There are a bunch of factors to consider, including your health, finances, and long-term goals. Weigh all of these factors when deciding which starting age makes the most sense for you. Create a my Social Security account to get a personalized estimate of how much you could get from Social Security at various starting ages. Follow a similar process to what I did above if you're trying to estimate which starting age will get you the most overall. 

Remember, you're making a plan for right now, but that doesn't have to be forever. You're free to make changes later if your life takes an unexpected turn. Just remember to alter your retirement savings plan as well to ensure you have enough money to cover all your costs.

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17 Tips To Live Comfortably Off Just a Social Security Check

Yahoo Finance 27 June, 2021 - 07:00am

There are plenty of discounts and perks seniors can take advantage of once they do retire, allowing them to live a rich life with limited funds. Take the right measures to stretch your benefits as far as possible and live comfortably.

Retiring from work and beginning to collect Social Security are two reasons to celebrate getting older. Although you are able to start collecting Social Security at age 62, your monthly benefits will be significantly higher if you wait until you reach your full retirement age, which ranges from 65 to 67 depending on the year you were born.

For example, if your full retirement age is 67, but you start collecting Social Security at 62, your benefits will be 30% less than they would be if you waited the additional five years. If possible, wait to start collecting until even after you reach your full retirement age. If you delay collecting Social Security until age 70, you will receive your maximum Social Security benefits.

Did you claim your benefits early and now find that you're shocked by the true costs of retiring on Social Security? If you filed for Social Security within the past 12 months, you can withdraw your claim and restart at a later date if you want to increase your benefits. However, it's important to note that if you choose to withdraw, you must repay all the benefits you received up to that point. Still, this could be worth it in the long term to be able to max out your Social Security payments.

If you are married, it's important to discuss how to maximize Social Security benefits should one spouse die. When one person dies, the widow or widower can receive the deceased spouse's benefits instead of their own if the benefits are higher than what they were receiving before. So it makes sense for the higher-earning spouse to retire later so that when two Social Security checks coming to the household become only one, the surviving spouse will receive the greatest benefits possible.

Your Social Security benefits will stretch further when your cost of living is lower. If you live in an expensive location, consider moving to a place where you can live on only a social security check. Cities like Tuscon, Arizona and Reno, Nevada have warm weather and plenty to do for retirees, plus their cost of living is low.

To make the most of your Social Security income, it's best to pay off all debts, including credit card bills and mortgages, before retiring. This way you can focus on putting your benefits towards what you need day-to-day, rather than spending it on things you purchased in the past.

Most states and Washington, D.C. do not tax Social Security benefits, but you can make your benefits stretch even further if you live in a state with even fewer taxes. Alaska and New Hampshire levy no tax on sales or income, and Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming do have sales taxes but don't impose state income taxes or taxes on pension income, according to AARP.

Splitting living expenses with a roommate or housemate is a great way to make your dollars stretch further, plus it can prevent the loneliness that often comes with being a retiree. A SmartAsset study found that in some major cities, renters who split a two-bedroom with a roommate save more than $800 a month over those who rent a one-bedroom on their own. Even if you are not renting, having a roommate can lower the amount you spend on utilities, internet, cable and energy.

You don't need to spend any of your Social Security check to stay busy and have fun. Go to a museum with free admission or check out a library book to stay entertained during the day. You can also attend open mic nights at a local coffee shop or theater, which often do not charge an admission fee. Other free activities include attending book readings, going to a lecture at a local college or university and attending free outdoor concerts.

Of course, these benefits might have to wait until after states are fully reopened from the coronavirus shutdowns.

An AARP membership costs $16 a year, but the discounts can earn you the membership fee back plus more. AARP members get savings on health and wellness expenses, restaurants, entertainment, shopping and community memberships that go beyond regular senior discounts.

If you are planning to relocate, moving into a retirement community could be cheaper than purchasing a new home in the area. "They're often cheaper than the surrounding homes in the market that are open to everyone," said retirement coach Sara Zeff Geber. Plus living in a retirement community makes it easier to socialize with other people your age. However, you need to be realistic about what you can actually afford with your Social Security check, as some luxury retirement communities can be really expensive.

Living on Social Security will mean you're on a pretty tight budget, but it's okay to eat out every once in a while -- especially if you go to a restaurant that offers a senior discount. Many popular chains offer up to 25% discounts on meals for people 55 and older, even on takeout. For example, Chili's offers a 10% senior discount every day and Uno Pizzeria & Grill has a 25% discount for seniors on Wednesdays, according to

Sprucing up your wardrobe doesn't have to take a big chunk of your Social Security check. Many major retailers offer discounts to senior shoppers: Banana Republic gives 10% off to shoppers age 50 and up, Kohl's gives shoppers 60 and above 15% off every Wednesday, and Ross has a 10% off Tuesday deal for anyone age 55 and up, according to

Medication costs can really add up. To save money on your prescriptions, always opt for the generic when possible. And consider joining a prescription membership program wherever you buy your medication to receive discounts and earn rewards. For example, the Rite Aid Rx Savings Program gives members 15 percent off or more on meds, and a 30-day supply of most generics costs only $9.99 with the plan.

An easy way to stay active for free is to go for a daily walk or hike. Make a morning walk around your neighborhood part of your daily routine, or visit a local hiking trail to enjoy nature in your area. Going for hikes during times when most people are at work saves you the hassle of dealing with crowds, so you can really enjoy the peace and quiet of the outdoors.

One of the best ways to feel good is to give back to those in need. Volunteer your time to a cause that's important to you -- it's a free way to spend your time that benefits others as well.

Many local colleges and universities allow seniors to take college classes for free thanks to tuition waivers for residents age 60 and older. Even if your local higher education institution doesn't offer a tuition waiver, you might be able to audit classes for free. This means you can attend all classes and lectures, but you won't receive a credit for the classes you take. One benefit of auditing is that you don't have to deal with exams and homework assignments.

You might not have had time to hit the gym regularly while you were working, but now there's no excuse to not be active. Medicare members can join the free SilverSneakers program, which gives seniors access to over 14,000 gyms and fitness centers across the country. Not only do you have full access to participating gyms, but SilverSneakers members can enjoy free classes at the gym and beyond. If you've never tried yoga or want to dance your way to health, you can do so without spending a dime.

Unfortunately, this perk may have to wait until all gyms are fully open and safe to go to again.

This article originally appeared on 17 Tips To Live Comfortably Off Just a Social Security Check

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New Bill Could Help Seniors Avoid Getting Cheated Out of Social Security Benefits | The Motley Fool

The Motley Fool 27 June, 2021 - 05:49am

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.

Millions of seniors today rely on Social Security to cover their living expenses. But there are many variables that go into determining what a given recipient's monthly benefit will look like.

One such factor is the age at which benefits are claimed. Seniors who wait until full retirement age (which is either 66, 67, or somewhere in between, depending on year of birth) to sign up for Social Security get their full monthly benefit without a reduction. Meanwhile, those who sign up starting at age 62 but before full retirement age get a reduced benefit, while those who delay their filings beyond full retirement age get a boosted benefit.

Another factor that goes into determining benefits is lifetime wages. Benefits are calculated by taking workers' earnings during their 35 most profitable years in the labor force, adjusting those numbers for inflation, and then applying a special formula.

As a general rule, the higher one's wages are, the higher one's Social Security benefit will be in retirement -- though that rule only applies to workers whose earnings don't exceed the annual Social Security wage cap. But in some cases, Social Security recipients may be losing out on a higher monthly retirement benefit due to incorrect information being reported about their wage histories. Now, a new bill is trying to change that.

Last week, the Know Your Social Security Act was introduced as a bipartisan proposal, and its goal is to make Social Security earnings statements more accessible to the public. Each year, the Social Security Administration (SSA) issues a statement summarizing workers' wages for the year. But it only mails those statements out to those who are 60 and older.

Those who are younger won't automatically receive statements in the mail. Rather, they can access their statements by creating an account on the SSA's website. But not everyone knows to take that step, and as such, some people may be missing out on an opportunity to review their yearly earnings statements.

That's a problem, though. Earnings statements aren't always correct, and if wages are underreported, it could result in a lower retirement benefit. The Know Your Social Security Act would require the SSA to mail annual earnings statements to anyone aged 25 and older. That way, workers will have an easier time reviewing their wage data, and they'll know to correct mistakes that work against them.

In addition to summarizing wages, annual earnings statements also give recipients an estimate as to what their monthly retirement benefit might look like. That piece of information is an incredibly important thing to have in the course of retirement planning.

If the Know Your Social Security Act passes, workers won't have to receive their earnings statements in the mail -- they'll be able to elect to receive them electronically. But the point, either way, is that lawmakers are pushing to make that information more accessible to the public, and it could result in higher benefits for a lot of people.

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Stop Guessing: Here's Exactly How to Maximize Your Social Security | The Motley Fool

The Motley Fool 26 June, 2021 - 11:02am

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.

If you want more security in retirement, it pays to maximize your Social Security benefits. If you're not sure how to do that, the good news is that you don't have to guess.

If you follow these five steps, you'll get the largest possible benefit for your situation. 

Social Security benefits are based on your average earnings. So if you earn more, you'll get more benefits. This is only true up to a point, though, because there's an annual "wage base limit," which is $142,800 in 2021. If you earn more than that, you aren't taxed on the extra income and it won't count toward determining your average earnings.

Of course, it's simple to suggest earning more, but not so easy to make that happen. Steps you can take to boost your earnings include negotiating your salary and raises, improving your job skills, or taking on a side gig to supplement income from your day job. 

Although benefits are based on average earnings, there's a caveat. Only 35 years' worth of earnings count.

Social Security adjusts your wages for inflation and calculates average monthly wages during the 35 years your earnings were highest. If you don't have a full 35 years on the job, your average will be reduced because you'll have some years of $0 wages included in your calculation. 

Of course, if you work for longer than 35 years, that will mean some work years don't count. If you put in more years at a higher salary, fewer low-earning years will end up in your average. 

That means if you are earning more toward the end of your career, you'll want to work longer than 35 years to maximize your benefits. If your salary has fallen, though, sticking it out on the job for more than 35 years won't have any effect on benefits, since your current low-earning years simply won't count in your average. 

Average wage isn't the only important factor in maximizing your benefits. Your average wages determine your standard benefit, but you receive that amount only if you claim Social Security at a designated age called your "full retirement age" (FRA).

If you want your checks to start before FRA, you'll have to accept a reduced benefit due to early filing penalties. But if your goal is to maximize your benefit, you'll need to wait for benefits until well after your FRA -- specifically, until age 70.

That's because seniors who wait past FRA get delayed retirement credits, which can be earned until then. These permanently increase your benefits for each month of delay. 

You can also maximize the amount of your benefits by making sure you don't have to pay federal tax on them.

A growing number of seniors will be subject to tax on part of their benefits because the thresholds at which Social Security benefits become taxable aren't indexed to inflation. But only certain income counts in determining if you hit those thresholds.

Distributions from Roth IRAs or Roth 401(k)s won't count, so you can take as much money out of Roths as you want and not have to worry about giving the IRS a cut of your Social Security. 

Finally, you can also maximize your Social Security benefits by avoiding state taxes on them. Just 13 states tax Social Security benefits. If you avoid living in one as a retiree, you won't have to worry about sending some of your retirement money to your local government. 

By limiting taxes, maximizing average wages, and earning delayed retirement credits, you should be able to score a hefty Social Security check. Remember, though, that even if you max out your Social Security benefits, they still won't be enough to live on without supplementary savings -- so make sure to have plenty of additional money in the bank before leaving the working world for good. 

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3 Retirement Surprises to Get Ahead Of | The Motley Fool

The Motley Fool 26 June, 2021 - 07:58am

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.

Many seniors enter their later years unprepared for the financial realities of retirement. You don't want to be one of them.

To ensure you have an accurate idea of the financial issues you're likely to face as a senior, here are three retirement surprises to prepare for right now. 

Many future retirees plan to work well into their 60s, often for financial reasons. Unfortunately, staying on the job so long may not be possible. In fact, unplanned early retirement is really common. 

If you've built your retirement goals around having a paycheck until late in life, it's a really nasty surprise to find out that won't happen. You may not have enough saved, and Social Security may not offer as much income as planned if you were counting on a delayed claim boosting your benefits. 

To avoid falling victim to this surprise, assume you'll leave work and claim Social Security at 62 when setting your savings goals. Taking this approach will force you to save more. It also means your retirement account balance will be big enough to support you -- even with early retirement and a reduced Social Security check. 

Many people base their retirement goals around the assumption they'll need only 80% of their pre-retirement income to maintain their living standard. That's because people assume they won't need to save as much, and that their spending will fall in other areas too. 

The reality, however, is that you may just face different expenses as a senior. It turns out spending doesn't actually decline much for a huge number of people. If you're one of them, you could face a savings shortfall. 

Rather than banking on the fact that you'll cut your spending by 20% and being surprised when that doesn't happen, make your retirement plans with the assumption you'll need to replace 90% or even 100% of pre-retirement income. Again, it's better to have too much money than to have too little. 

Speaking of expenses, there's a very good chance healthcare is going to be one of your biggest ones. Sadly, this is likely to come as a surprise to retirees who were counting on Medicare to cover everything.

Medicare actually comes with high coinsurance costs, there are premiums and deductibles, and some common care needs -- such as dental care and hearing aids -- aren't covered.  The reality is that the average 65-year-old who is retiring today could face out-of-pocket medical care costs of around $300,000. And if you're a long way from retirement, that number is likely to climb higher. 

Preparing for huge healthcare expenses is a lifelong endeavor. If you're eligible for a health savings account, investing in it throughout your career can help you to be ready. If you don't, take healthcare spending into account when deciding how much to contribute to your 401(k), IRA, and other retirement plans. 

If you're surprised by your spending habits, your healthcare needs, or your unplanned early retirement, you could end up in a dire financial situation. The good news, however, is that now you know you're likely to face these challenges in your later years, and you can get ready to take them on. 

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Can You Withdraw From Your Retirement Accounts Early? | The Motley Fool

The Motley Fool 26 June, 2021 - 05:49am

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.

Retirement savings generally cannot be used penalty-free until you're 59 and 1/2 years old, but what if you need to access the money earlier? In this Fool Live video clip, recorded on June 16, contributor and certified financial planner Matt Frankel talks about the rules you need to know. 

Matt Frankel: Arnold says, "If an individual is not at retirement age but has health issues that prevent them from working full-time, are there are exceptions for health issues to access retirement funds like Roth IRAs and also security funds without penalties at my age with health issues?" The answer is yes and no. As far as Social Security, there is a Social Security disability program, assuming that you qualify for disability benefits, I can't offer personal advice to your situation. But if you think you would be considered disabled under Social Security's eyes, by all means, apply for that. With both 401(k)s and IRAs and all the other qualified plans like 403(b)s, things like that, there are early withdrawal exemptions for disability. But the way the IRS words it, it's as the total and permanent disability of the participant/IRA. You have to be considered totally and permanently disabled in order to qualify for that particular exemption. Now there are some others that might apply to you, I don't know your age, but 401(k)s and qualified plans have the separation from service exemption that says if you're no longer at your job, you can start taking money out at 55. There is the exemption, the substantially equal periodic payments, that allows you to take your money out as a series of payments according to some formula over the rest of your lifetime, I guess I would word it. But there are some exemptions, but to just have free rein to take money out of your account early, you would have to be totally and permanently disabled. Even with any of those exemptions, it's really important to keep in your mind that anything you take out of those plans are considered taxable income as long as it's not a Roth account. A lot of moving parts there. I don't know your personal situation, what your health issues are, nor do I want to ask them here. But there are a lot of exemptions available that you might be able to take advantage of, especially when it comes to things like 401(k)s and qualified plans.

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How you could score $4,000-plus a month from Social Security in 2022

Fox Business 26 June, 2021 - 05:21am

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The Social Security Administration is considering raising retirement payments next year to offset rising inflation. FOX Business' Lydia Hu with more.

Social Security represents a vital financial backstop for aging Americans. Most retirees rely on it for the majority of their financial support in retirement, and a surprisingly large number of Americans get nearly all of their retirement income from the program.

A typical recipient got a $1,543 monthly check when 2021 began. But much larger Social Security payments are possible if you do everything you can to maximize your benefit. In fact, if you play your cards right and are fortunate enough to qualify, it's entirely possible that the maximum Social Security benefit will jump to more than $4,000 a month starting in 2022.

Below, we'll look at what it takes to earn that maximum benefit and what you can do to boost your prospects for more money from Social Security.

The Social Security Administration (SSA) calculates your benefit based on your average earnings over the course of your career. It assumes that a typical career lasts 35 years, and so it takes your 35 highest-earning years after adjusting for wage inflation. Only earnings up to the annual wage base limit count toward your Social Security calculation, so a big blowout year won't necessarily have the impact you'd expect.

The SSA also looks at when you claim Social Security benefits. You're entitled to start receiving monthly checks as early as age 62, but if you do, you'll have to accept a smaller benefit. Conversely, waiting past full retirement age -- which ranges between 66 and 67, depending on your birth year -- will get you delayed retirement credits that will boost your monthly check.

Put all that together, and there are three things you have to do to max out your Social Security benefit:

If you followed that strategy and retired at age 70 in 2021, then you would've qualified to receive this year's maximum Social Security benefit of $3,895 per month. That adds up to $46,740 in annual benefits -- quite a bit more than the roughly $18,500 that the typical Social Security recipient receives.

But the maximum amount Social Security pays tends to go up from year to year. That's largely because the annual wage base limit usually rises from one year to the next, and so the maximum possible average monthly earnings over a 35-year career are higher. For instance, the maximum benefit jumped $105 in 2021 from 2020's figure of $3,790 per month. It was only in 2009 that the maximum topped the $3,000 mark for the first time.

If anything, it seems likely that 2022's wage base limit could rise even more than usual. Wage pressures are affecting employment, with many jobs going unfilled due to pay that's perceived to be too low. All it would take is a move higher that's similar to 2021's for the 2022 maximum Social Security benefit figure to reach $4,000 a month for the first time ever.

Obviously, many people will have earnings that are far less than the Social Security wage base limit, while others won't work a full 35 years. Yet even though the maximum Social Security benefit might be out of reach in those situations, you can still do what you can to boost your earnings and time your Social Security benefits to get the biggest monthly payment you can. The steps you take will play a big role in how secure your retirement is financially.

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