Make the Most of Social Security: Important Changes and Advice for Iowans Approaching Retirement
As you near retirement, it is critical for Iowans to understand the Social Security changes that may affect your benefits. For many retirees, Social Security is a key source of income, and making informed decisions about when to begin receiving benefits might affect your retirement income. In this blog, we will highlight some important Social Security changes to be aware of, as well as provide recommendations on how to optimize your benefits.
Recognizing Full Retirement Age (FRA)
The Full Retirement Age (FRA) is the age at which you can begin receiving your full Social Security retirement payment. For persons born between 1943 and 1954, the FRA is 66. For those born between 1955 and 1959, the FRA steadily rises by two months each year. The FRA is 67 for persons born in 1960 or later.
If you choose to begin receiving Social Security benefits before your FRA, your monthly benefit amount will be permanently decreased. The amount of the reduction is determined by how soon you opt to receive benefits. For example, if your FRA is 66 and you start receiving benefits at the age of 62, your monthly income will be cut by up to 30%. Understanding your FRA and the implications of collecting or deferring benefits might help you make more educated decisions regarding your retirement finances. It’s worth noting that your FRA may have an impact on your spouse’s benefit amount if they are entitled to spousal benefits based on your work record.
The cost of living adjustment (COLA) is rising.
The Consumer Price Index (CPI) is used to modify Social Security benefits annually to keep up with inflation. In recent years, the revisions have been minimal, raising questions about the sufficiency of retiree benefits. However, the Social Security Administration (SSA) has announced an 8.7% increase in benefit checks for 2023, which is larger than the 5.9% increase in 2022, which was the biggest adjustment since 1981.
This rise has resulted in a $146 increase in average monthly benefits for retired Social Security workers. The SSA calculated the cost of living adjustments by comparing the Consumer Price Index Wage (CPI-W) for the third quarter of the previous year to the third quarter of the current year. The COLA is then adjusted depending on the difference in CPI-W between years.
Increased Maximum Taxable Earnings
The maximum earnings due to Social Security taxes usually rise yearly to keep up with inflation and changes in average income. Workers will be taxed at a rate of 6.2 percent on profits up to $147,000 in 2022. The maximum wages subject to Social Security taxes has increased to $160,200 for 2023. This adjustment emphasizes the significance of remaining up to date on Social Security upgrades in order to make sound financial decisions.
The maximum Social Security benefits increased.
The maximum Social Security benefit for a worker who retires at full retirement age has increased, as expected. You may be required to pay taxes on your Social Security benefits depending on your income. Here is an example of the beginning monthly benefit for 2023 based on retirement age:
At age 62: $2,572
At age 65: $3,279
At age 66: $3,506
At age 70: $4,555
Your combined income is included in the calculation, which comprises your adjusted gross income, nontaxable interest, and half of your Social Security benefits. If your total income reaches specified criteria, you may be required to pay income tax on up to 85% of your Social Security payments. Given these considerations, preparing for tax responsibilities is critical when planning for retirement. A reputable financial advisor can assist you in staying on track.
Benefits for Spouses and Disabled Workers Have Increased
The Social Security Administration (SSA) has stated that payments for spouses and disabled workers would be doubled in 2023. The average widowed mother with two children saw her payments grow significantly, from $3,238 to $3,520. Similarly, pensions for elderly widows and widowers living alone increased from $1,567 to $1,704. Benefits for disabled workers with a spouse and one or more children increased as well, rising from $2,407 to $2,616.
It’s important to remember that the benefit increases listed are averages, and that individual circumstances may differ. Nonetheless, these changes will provide critical financial assistance to those who rely on Social Security benefits. A financial advisor can provide insight and help you make informed decisions if you’re unsure how to collect your benefits.
Do Not Count on Social Security Alone
Because Social Security benefits were only designed to reimburse around 40% of your pre-retirement income, they are insufficient to sustain your lifestyle when you leave the workforce. Furthermore, the Social Security Administration has been running with a surplus for several decades, which means that any spare funds were placed in a trust to supplement money workers put into the system directly. The surplus, though, is scheduled to run out in 2034.
As long as employees contribute to Social Security, there will be enough money to pay Social Security benefits, so you shouldn’t be concerned about the program running out of money. However, when the excess financing runs out, payments are likely to be reduced, or the government may make other adjustments to the program. This is why it is recommended to have many sources of income in order to build a strong and diverse portfolio.
Consultation with a Financial Advisor
Working with a financial advisor can help you achieve many of your financial goals in retirement. A financial advisor can assist you in developing a customized strategy based on your specific circumstances, such as income, spending, and investment goals. They can also help you navigate complex financial matters like Social Security benefits.
Our financial advisors at Johnson Wealth and Income Management can help you stay on track with your goals by evaluating your progress and changing your strategy. Whether you want to optimize your Social Security income, start investing, or achieve other financial goals, our expert financial consultants can provide vital knowledge and support.
Keeping up with Social Security changes is critical to optimizing your benefits and achieving your retirement goals. By taking this action, you will be one step closer to ensuring that your assets will last throughout your lifetime.
We recognize that retirement planning is a journey, and we’re here to help you every step of the way at Goodman Green Wealth Management. We can assist you with Social Security planning, investment management, and tax preparation. Our team has the skills and understanding to assist you in achieving your financial objectives and living a worry-free retirement.
When may I begin receiving Social Security benefits?
The year of your birth determines your full retirement age (FRA). It’s critical to understand how receiving benefits prior to or after your FRA can affect your monthly payout.
What is the Social Security maximum taxable earnings?
The maximum taxable wages for Social Security might fluctuate on an annual basis, so it’s critical to stay up to current on these changes.
How do I compute my Social Security benefit?
Your Social Security payment is calculated using a variety of factors, including your age, income, and marital status.