Each year, people that are receiving Social Security benefits can potentially receive a cost-of-living adjustment (COLA). We say “potentially” because there was no increase at all in 2009, 2010, and 2015. In 2016, the increase was a paltry .3 percent.
According to officials, things are going to be different this year. Before we provide an explanation, we will share some general information about the Social Security program.
Eligibility Requirements
Eligibility for Social Security is earned through the accumulation of retirement credits. You get the credits when you pay FICA or self-employment taxes. In 2021, you get one credit for every $1470 of earnings, and the maximum you can earn in a year is four credits.
If you do not have 40 credits on your own, you could qualify for Social Security on your spouse’s work record if you are married.
You become eligible for your full benefit when you are between 66 and 67 depending on the year of your birth. The age is 66 for people were born between 1946 and 1954, and it rises by two months per year after that until it maxes out at 67 years of age.
If you are willing to accept a reduced benefit, you can apply for Social Security when you are as young as 62. The amount of the reduction also depends on your birth year, but it will be between 25 percent and 30 percent.
You are not required to apply for Social Security when you reach the full eligibility age. If you wait, your benefit will increase by eight percent for every year that you delay until you are 70. At that point, you no longer accrue delayed retirement credits.
How Are Social Security Benefits Calculated?
The amount that you will receive when you start to draw a Social Security direct deposit will be based on the 35 years during which you earned the most amount of money. However, there is a maximum benefit that stands at $3148 a month.
Why is there a maximum? There is a ceiling on the amount of income that can be taxed for Social Security purposes, and it is $142,800 this year.
Very few people receive the maximum benefit, and the average Social Security payout in 2021 is $1543.
When you are planning for retirement, you should gain an understanding of how much you can expect to receive from Social Security. You can get this information on an ongoing basis if you establish an account on the Social Security Administration website.
2022 Cost of Living Adjustment
The Social Security cost-of-living adjustment is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers. It is tied to the rate of inflation, and we have seen significant inflation in 2021.
Based on the current index, the COLA for next year will be about 6.2 percent according to current projections. If this comes to pass, it will be the most significant increase since 1983 when seniors received a 7.4 percent cost-of-living bump.
Possible Index Change
President Joe Biden has proposed a change in the way that the cost-of-living adjustment for seniors that receive Social Security is calculated. The expenses that are typically incurred by older Americans are different than the expenses that are incurred by a broad swatch of workers.
With this in mind, he has stated that he would like to begin using the Consumer Price Index for the Elderly. This index follows the spending of people that are 62 years of age and older.
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