In January, retirees and other Americans who get Social Security benefits started receiving bigger checks. Intended as a cost-of-living adjustment, the increase amounts to 2.8 percent, a $40-per-month increase on average and will be the biggest adjustment to Social Security payments in the past seven years.
Inflation is taken into account by the Social Security Administration. They use an index to track the inflation that all of its beneficiaries are contending with. At the end of each year, it passes along a cost-of-living adjustment to Social Security recipients that should adequately match this inflation rate.
The problem with this adjustment is that the cost of living index isn’t always accurate - especially for seniors. For instance, housing and medical costs tend to represent a much higher percentage of total expenses for seniors compared to working-age urban and clerical workers. This means these important expenditures are being underrepresented in the cost of living/inflation formula.
In an analysis from The Senior Citizens League, the purchasing power of Social Security income has dropped by 34% since 2000, and if this trend is unchecked, then that number will only get worse.
Another thing that affects your total benefits is when you start to claim them. The decision of when to take Social Security benefits is, for many Americans, largely a matter of financial necessity rather than financial planning.
But for those who are coming up short in their retirement savings, delaying your Social Security benefits could result in a bigger payout, and this could be a big help in your retirement years.
Your Social Security benefit at full retirement age is based on your highest 35 years of earnings. By working an extra year in your late career, you could increase your payout by raising the amount in those top 35 years.
If late-career earnings replace a zero (let’s say you had a year without any earnings during that time) in the calculation of your benefits, you could see an increase in the benefit you're entitled to at full retirement age.
Claiming before your full retirement age permanently reduces your benefits; each year you delay collecting from full retirement age until you turn 70 boosts the total by 8 percent.
Get a copy of your earnings record from Social Security to see how much impact late-career earnings would have on your benefit.
Keep in mind that you might also have access to benefits based on the record of a spouse or ex-spouse. That benefit could already be larger than what you'd be entitled to with a few more work years under your belt.
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