What is the maximum Social Security benefit?
En español | The most an individual who files a claim for Social Security retirement benefits in 2021 can receive per month is: $3,895 for someone who files at age 70. $3,148 for someone who files at full retirement age (currently 66 and 2 months). $2,324 for someone who files at 62. AARPThe Maximum Social Security Benefit Explained
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09 August, 2021 - 08:40pm
See what else awaits Social Security in the near future and find out what the program will look like in 2035 -- you might want to learn how to stretch your money now.
Part of the problem can be attributed to longer life expectancies, a smaller working-age population and an increase in the number of retirees. By 2035, the number of Americans 65 and older will increase to more than 78 million from about 56 million today. As a result, more people will be taking money out of the Social Security system -- but there will be fewer people paying into it.
That doesn't mean the program will run out of money entirely, though. Payroll taxes are expected to cover about 76% of scheduled benefits. But, if the 21% funding gap isn't filled, retirees could get lower Social Security payments or workers might need to pay more into the system. If no changes are made, this is what Social Security could look like in the future, according to experts.
If you plan to rely on the program in 2035, keep in mind there's a chance you could receive less in Social Security benefits than you might have expected. If no changes are made to deal with the trust fund shortfall, benefits will have to be reduced by 23%, according to the 2020 annual report from the trust funds' board of trustees.
For many retired adults, that kind of cut in benefits would represent a big financial hit. Social Security provides at least half of the income for 50% of elderly married couples and 70% of elderly single people, according to the Social Security Administration.
Some experts doubt that a big slash in Social Security benefits is forthcoming.
"The ramifications of that event would be beyond traumatic for everyone in the country," said Joseph E. Roseman Jr., a Social Security expert and retirement planner at Retirement Capital Planners. "You've got a national disaster on your hands."
That's why he thinks Congress will step in before 2035 to prevent such a deep cut in benefits. Mary Beth Franklin, a Social Security expert and contributing editor for Investment News, agrees that a big cut in benefits is unlikely.
"As pensions are disappearing, people are relying more on Social Security," she said. Because of the program's popularity, politicians won't want to tinker with benefits for existing retirees and will likely have to find other solutions to the trust fund shortfall.
Even though Social Security isn't expected to run out of money for 15 years, several options for changes have already been floated to deal with the budget shortfall. These options include:
Increasing the wages subject to Social Security taxes
Read on to learn more about the details of each of those proposals and how they would affect Social Security if implemented.
If benefits aren't cut, tax revenue for the program will likely have to increase. One way to do that is to increase the payroll tax rate. Social Security is funded through a 6.2% payroll tax that workers pay, plus another 6.2% that employers pay (self-employed people have to pay the full 12.4%).
If the trust fund reserves become depleted, the payroll tax would need to increase by 3.14 percentage points to increase revenues enough to sustain the program, according to the 2020 annual report from the board of trustees. If nothing is done until 2035, the increase would need to be 4.13%.
However, Roseman doesn't expect Congress to raise the payroll tax to boost trust fund reserves. "There's probably the least appetite for that than anything you can look at," he said. "It's a tax increase."
An increase in the payroll tax rate could take different forms. Currently, the total payroll tax is allocated equally between the employee and the employer. The projected tax increase of 3.14% could be allocated equally among employers and employees or allocated more to the employer to hide the tax hike from taxpayers.
A legislative proposal called the Social Security 2100 Act from Rep. John Larson (D-Conn.) favors an equal split. It would raise the Social Security tax rate to 7.4% for both the employer and the employee. The bill has gained some support but so far has stalled in Congress, Politico reported.
Another option to increase tax revenue to fund Social Security is to raise the amount of earnings subject to taxation. Only the amount of wages up to the Social Security contribution and benefit base are subject to Social Security taxes. This amount is indexed for inflation, so it was $132,900 in 2019 and is now $137,700 for 2020.
To help the trust fund remain solvent, the taxable wage limit would have to be even higher -- or lifted entirely -- so that all income would be subject to the payroll tax, Franklin said. This change would affect high-income people whose earnings above $137,700 currently escape taxation for Social Security.
Raising the taxable wage limit would only affect people whose wages exceed the current contribution and benefit base. For example, if you make $80,000 per year, you pay Social Security taxes on all of your income, so whether the limit is $130,000, $300,000 or removed entirely, it doesn't affect your payroll taxes.
However, if you make $250,000 as a W-2 employee in 2020, you only pay Social Security taxes on the first $137,700, for a total of $8,537.40. If the limit went up to $300,000, you would pay Social Security taxes on all of your $250,000 income, for a total of $15,500.
Because tax hikes aren't popular, Congress will more likely raise the full retirement age for Social Security benefits, Roseman said. That means younger generations will have to work longer before they can start collecting benefits.
Currently, the age at which you can collect full retirement benefits ranges from 65 if you were born in 1937 or earlier, to 67 if you were born in 1960 or later.
Both Roseman and Franklin said there are proposals to raise the full retirement age gradually to 69 -- that would keep more money in the trust funds. At the same time, it might eliminate a popular strategy that retirees use to maximize Social Security income. Currently, if you delay collecting retirement benefits past your full retirement age, your benefit increases each year you wait until age 70, Roseman said.
As life expectancy increases, raising the retirement age might seem like a reasonable response because people have longer to work. However, raising the retirement age essentially cuts benefits because it delays the payments of benefits that people are expecting. In addition, the overall longevity increases haven't applied to many low-income workers, who have shorter life expectancies than wealthy people. People with low incomes would likely be the hardest hit by increasing the retirement age.
Retirees receiving Social Security benefits typically see their checks increase slightly most years to keep pace with inflation. These cost-of-living adjustments -- or COLAs -- are based on the consumer price index. After no cost-of-living adjustment in 2015, the last few years saw a 0.3% bump for 2016, a 2% increase in 2017, a 2.8% boost for 2018, another 2.8% increase for 2019 and a 1.6% increase for 2020.
To keep the Social Security trust funds solvent, there could be changes to cost-of-living adjustments, Roseman said. Most likely, the formula wouldn't change for people born before 1960. But, people born after 1960 might see a reduced COLA, he said.
If that happens, benefit checks will not keep pace with inflation. People who rely heavily on Social Security might have to find ways to reduce spending to make ends meet.
As the past few years have shown, inflation adjustments to Social Security benefits can be small or nonexistent. Low cost-of-living adjustments could make it very hard for people living on fixed incomes to pay their expenses in places where housing and rent costs are rising each year. Plus, seniors spend more than younger people on healthcare costs, which tend to rise faster than the cost of inflation.
According to the 2020 annual report from the board of trustees, the funding shortfall could be solved by cutting benefits by 19% for all Social Security beneficiaries -- including those who are currently receiving benefits -- or cutting benefits by 23% for future Social Security beneficiaries. If nothing is done until 2035, however, all benefits would need to be reduced by 25%.
Should the Social Security reserves run out in 2035, benefit cuts could take various forms. The simplest cut would be an equal one across the board. Another option would be to cut benefits differently based on income. For example, the top 25% or top 50% of earners might see their benefits reduced, whereas benefits for lower-income Social Security recipients would remain intact.
Similarly, Social Security could become a means-tested benefit, determined in part by the recipient's income or other assets. Currently, if you paid into the Social Security system, you'll receive benefits regardless of your income or assets.
As of 2020, the average retirement benefit is $1,503 per month. If benefits were cut by 20% across the board, the average benefit would drop by about $301 each month, or $3,612 per year. If benefits were to drop by 23%, the monthly decline would be $346, or $4,152 per year.
As Roseman sees it, the Social Security shortfall problem is easy to solve -- but it's not easy to get Congress to make the necessary changes. "Nobody wants to compromise," he said.
Nonetheless, Roseman doesn't expect Social Security to run out of money. He tells his clients to count on it as a source of retirement income, but it shouldn't be their only source of retirement income. "I would never advise anybody to live on Social Security alone," he said.
This article originally appeared on GOBankingRates.com: When Social Security Runs Out: What the Program Will Look Like in 2035
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09 August, 2021 - 08:40pm
Retirement costs a lot of seniors over $1 million these days, and Social Security can go a long way toward helping them cover their expenses. But too often, people end up shortchanging themselves because they don't understand how the government calculates their benefits.
If you're trying to get the most out of the program, you need to avoid the following 12 mistakes.
Your earnings record lists the amount of money you've paid Social Security taxes on every year. That's not always the same as your income. In 2021, you only pay Social Security taxes on the first $142,800 you earn. The Social Security Administration gets this information straight from the IRS, so it's usually accurate, but sometimes errors happen. The worst-case scenario is your income doesn't show up for a year you've worked.
You can avoid this by checking your earnings record annually through your my Social Security account. If you notice anything off, submit a Request for Correction of Earnings Record form to the Social Security Administration, along with documentation of your income for the year.
Your Social Security benefit is based on your average monthly income over your 35 highest-earning years, with adjustments for inflation. You only need to work 10 years to qualify for benefits, but if you don't have at least 35 years of work on your record, you'll have some zero-income years factored into your calculation. This will significantly reduce your benefit amount.
Working longer than 35 years has its perks if you're earning more later in your career than you did starting out. Your more recent, higher-earning years will begin to replace your earlier, lower-earning years, resulting in a larger benefit.
Because your Social Security benefit is based on your income during your working years, anything you do to increase your income today will help your benefits tomorrow. That assumes you're not already earning more than $142,800 in 2021.
There are several ways you could try to increase your income, including switching employers, pursuing promotions, starting a side hustle, or working overtime. Think about which strategies would work best for you and try to put them into practice.
If you want the full benefit you're entitled to based upon your work record, you must wait until you reach your full retirement age (FRA) to sign up. That's 66 for those born between 1943 and 1954. Then, it rises by two months every year thereafter until it reaches 67 for everyone born in 1960 or later.
You can sign up before your FRA, but you'll get smaller checks if you do so. Conversely, delaying benefits past your FRA increases your checks until you reach your maximum benefit at 70. It's a good idea to consider a variety of starting ages before deciding on the best time for you to sign up. Your Social Security account has a benefit calculator that can help with this.
If you sign up right away at 62, you'll only get 70% of your full benefit per check if your FRA is 67 or 75% if your FRA is 66. It can still be a smart move if you don't believe you'll live past your 70s or you need the money to cover your living expenses. But otherwise, it's usually better to delay a little while.
Every month you delay increases your checks slightly and can increase your lifetime benefit. However, if you choose to delay, you have to be prepared to cover your expenses on your own until you're ready to sign up.
You qualify for your maximum Social Security benefit at 70. This is 124% of your full benefit if your FRA is 67 or 132% if your FRA is 66. Your checks won't get any bigger if you delay benefits past this point, so you shouldn't wait any longer to sign up.
Seniors claiming Social Security while working could lose some of their benefits to the Social Security Earnings Test if they are under their FRA. The Social Security Earnings Test takes $1 from your benefit for every $2 you earn over $18,960 in 2021 if you'll be below your FRA for the full year. If you'll hit your FRA in 2021, you'll only lose $1 for every $3 you earn over $50,520 if you hit this amount before your birthday.
That money isn't gone forever. The Social Security Administration recalculates your benefit at your FRA to include the amount it withheld, so your future checks will be slightly larger. But you may be able to get larger checks still if you just delay benefits until you're ready to retire.
Married couples can either claim Social Security benefits on their own work record or on their spouse's. A spousal benefit is up to 50% of the worker's benefit at their FRA. But if the worker starts benefits early, it reduces their spouse's benefit as well.
Coordinating with your spouse is crucial to maximizing your household benefits. Use your Social Security accounts to estimate how much each of you can expect from the program. Then, look at a few different starting ages to determine when it makes sense for each person to sign up. Keep in mind that you can't claim a spousal benefit until the worker signs up.
You can also qualify for benefits on your ex's work record without affecting their or their current spouse's benefits. But there are a few rules you need to be aware of. The marriage must have lasted at least 10 years. And if the worker isn't already claiming benefits, you must have been divorced for at least two years before you can sign up. If you remarry, you'll lose these benefits.
Though rare, other household members, like dependent or disabled children, may qualify for Social Security benefits on your work record. You may also be able to claim survivors benefits for yourself and your children if you're caring for a deceased worker's child. In the latter case, you don't even need to be 62 or older to sign up.
Explore all of the benefits available to you and make sure everyone in your household that qualifies is receiving benefits. The Social Security Benefit Eligibility Screening Tool can help you quickly figure out which benefits you qualify for.
The federal government could take back some of your Social Security benefits if your provisional income -- adjusted gross income (AGI) plus nontaxable interest and half your Social Security benefits -- exceeds $25,000 for an individual or $32,000 for a married couple. Some states tax Social Security benefits as well. Here's a guide to Social Security benefit taxes if you're interested in learning more.
It's not always possible to avoid Social Security benefit taxes completely, but you may be able to reduce how much you owe by staying mindful of your taxable income. Reducing your spending or relying more upon Roth savings could help you hold onto more of your benefits.
For most people, Social Security is never going to cover all of their retirement expenses. So it's important to have a lot of personal savings, too. It's easier to save as much as you need if you start early and make regular contributions. A 401(k) or an IRA is a great place to begin. You may even get an employer match if you contribute to a 401(k).
Use your current expenses and estimated life expectancy to get a rough idea of what your retirement might cost. Don't forget about inflation. Then, subtract your estimated lifetime Social Security benefit from this total to figure out how much you need to save on your own.
The government creates the rules for Social Security, but you still have a lot of say in how big your checks are. Avoiding the mistakes listed here is key to getting the most out of the program.
If any of the above mistakes surprised you, review your plans for Social Security and see if you can make any changes to help hold onto more of your hard-earned benefits.
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09 August, 2021 - 08:40pm
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There's a lot you can do over the course of your life to influence how much money you'll get from Social Security. That's empowering, but it also means you can cost yourself benefits if you're not careful. Fortunately, the Social Security Administration wants to help you undo these mistakes when it can. Not all such errors are reversible, but here are three you can definitely fix -- as long as you don't wait too long.
The Social Security Administration calculates your benefits based on your income during your working years -- specifically, your 35 highest-earning years. It keeps track of this information in your earnings record, which you can view online -- though first, you'll have to create a my Social Security account. The information about your income comes directly from the IRS every year, so it's usually pretty accurate -- but not always.
For example, if you submit your Social Security number incorrectly when filling out your employment paperwork or legally change your name but fail to notify your employer, you could wind up with some or all of your income from some years missing from your earnings record. That's a problem, because the government won't consider that missing income when calculating your benefit, and you'll eventually end up with smaller checks because of it.
You can avoid this by checking your earnings record annually to make sure everything looks accurate. Don't throw away any tax documentation that proves your income for a given year until you're sure your Social Security records show the correct income figure for it. If that record is wrong, you'll need to fill out a Request for Correction of Earnings Record form and submit it to the agency, along with documents proving your real income for the year.
Though it won't be an issue for most people, high earners may notice that their earnings record doesn't match their actual income because of the cap on income subject to Social Security taxes. In 2021, you only pay Social Security taxes on the first $142,800 you make, so this is the maximum amount you can see listed in your earnings record for the year, even if you actually earn more. In prior years, the limit was lower, so that could explain why your income might not exactly line up with your earnings record.
If you sign up to start receiving Social Security benefits before you reach your full retirement age -- which is between 66 and 67 for today's workers -- you'll be cutting into the size of your monthly checks. If you claim when you turn 62 -- the earliest a person can -- you'll only get 70% of what the government defines as your "full" monthly benefit if your FRA is 67, or 75% if your FRA is 66.
Now, it's not always a bad move to claim at a younger age. You'll get smaller monthly checks, but you'll get more of them. If you need the money to pay your bills sooner, or don't believe you'll live into your late 70s or beyond -- the breakeven age at which you'll get more out of the program by waiting -- you may be right to start taking Social Security early.
But if those conditions don't apply to you, and you did claim before your full retirement age, you could be short-changing yourself.
However, it is possible to withdraw your Social Security application and go back to not taking benefits for a few years -- as long as it's been no more than one year since you first signed up for them. You'll also have to repay any money you've received from the program so far. This includes benefits any of your family members have received based on your work record as well, so you'll need their permission to do this.
If that's not possible, you can still suspend your benefits once you're at your FRA. This means you'll stop getting checks until you qualify for your maximum benefit at 70... unless you request that they restart them earlier. Doing this will increase your checks slightly, though they still won't be as large as they would have been if you hadn't received any Social Security benefits before 70.
You may not be the only person who can claim Social Security benefits on your work record. If you're married, your spouse will be eligible for up to 50% of your benefit at your FRA, unless they can get more by claiming based on their own work record. If you have any minor or disabled children, they may also qualify for Social Security benefits based on your work record.
The program also pays survivors benefits to the surviving family members of qualifying workers, including spouses, minor or disabled children, and sometimes ex-spouses or dependent parents. You can use the Benefit Eligibility Screening Tool to figure out which benefits (if any) each person qualifies for.
Keep in mind that some benefits, like spousal benefits, are only available to others in your family after you sign up for Social Security yourself. It may also be advantageous in some circumstances to delay claiming your benefits if you're trying to go for the largest monthly benefit possible.
If you have questions about these or any other Social Security topics, you can always contact the Social Security Administration or visit your local Social Security office. Someone there will be able to give you advice on your specific situation, and do their best to help you avoid making costly mistakes that could impact your retirement.
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