Social Security benefits will probably be an important source of income once you retire. The amount you will receive is based on a number of factors including your earnings history, the age at which you retire and annual Cost of Living Adjustments made to payment levels.
The Social Security program limits the amount of earnings subject to the Social Security tax and then uses that same annual limit in examining your income to determine your basic benefit level. The benefit level calculation takes into account your highest earnings years over a 35-year period to determine your basic benefit. The annual taxation limit and resulting income limit for the basic benefit calculation is $127,200 for 2017.
If you retire at the normal retirement age, that basic benefit will be what you receive. If you retire before the normal retirement age, beginning at age 62, the benefit is adjusted downward. For many years, the normal retirement age was 65. However, for those born in 1938 or later, the normal retirement age is gradually increasing to age 67 until it reaches 67 for people born after 1959.
The amount of the downward adjustment for early retirement benefits depends on your normal retirement age and how early you begin receiving the benefits. If your normal retirement age is 65 (born before 1938) and you start receiving benefits at age 62, your basic benefit is reduced by 20%. If your normal retirement age is 67 (born after 1959) and begin receiving benefits at age 62, your reduction is 30%.
Cost of Living Adjustments
The Social Security Administration adjusts the payment levels each year to reflect increases in the cost of living (inflation). The 2015 adjustment was 1.7% with no cost of living adjustment for 2016 and a 0.3% increase for 2017.
What does all this mean for you?
Here are some typical monthly benefits for 2017:
What should you do?
First, make sure your Social Security records are accurate. You should receive a statement each year with your earnings history and an estimate of what your retirement benefit would be. Review it carefully and contact a local Social Security office if you find an error.
Finally, note that Social Security alone will probably not enable you to have the retirement lifestyle you want. Therefore, you should take advantage of other retirement plans (employer sponsored plans and IRAs) and save even more.
The information provided is not intended to be legal, tax, or financial advice or recommendations for any specific individual, business, or circumstance. TowneBank cannot guarantee that it is accurate, up to date, or appropriate for your situation. Financial calculators are provided for illustrative purposes only. You are encouraged to consult with a qualified attorney or financial advisor to understand how the law applies to your particular circumstances or for financial information specific to your personal or business situation.