What you need to know about Social Security
By Alina Parizianu , CFP ® , MBA , RICP ®
The days when Americans could count on pensions from their employers are long gone , as fewer and fewer organizations offer them to their staff . While pensions are becoming an endangered species , Social Security remains the primary source of guaranteed lifetime retirement income for many older adults .
In addition , unlike other types of retirement earnings , Social Security usually keeps pace with inflation through yearly cost-ofliving adjustments . In fact , the Social Security Administration ( SSA ) recently announced an 8.7-percent cost-of-living increase for 2023 to adjust for the current high inflation — the largest hike in more than 40 years . The average Social Security recipient will pocket about $ 145 more per month in 2023 as a result . Most of us will depend on Social Security for at least part of our revenue when we retire , so here ’ s what you should know about this convenient benefit .
Who is eligible for Social Security benefits ? Your age and work history affect your eligibility for Social Security benefits . It takes someone 10 years of work covered by Social Security to fully qualify for benefits . Social Security income is based on your inflation-adjusted average wages earned throughout your working career . At age 62 , the SSA indexes your highest 35 years of earnings , averages them , and applies a formula to determine your benefits at full retirement age ( FRA ). FRA is the age when you can claim your complete or unreduced Social Security benefit . Currently , FRA is between ages 66 to 67 , depending on your year of birth . Your FRA affects when you can claim Social Security without reducing your benefits , which in turn impacts your overall retirement income . It also determines how much you can make if you ’ re employed while collecting Social Security without forfeiting your benefits . If you ’ re married , it can affect spousal or survivor income .
The ABCs of FRAs The minimum age to start claiming your Social Security income is 62 . However , if you do not need the income and can afford to delay your benefits until full retirement age , postponement might be beneficial . Claiming benefits before full retirement age will reduce your Social Security income . For example , if you choose to start receiving your benefits at age 62 and your FRA is age 67 , your Social Security income will decrease 6.7 percent for each of the first three years and 5 percent for each following year . This would result in a 30-percent overall reduction in benefits . On the other hand , if you claim Social Security after your FRA , you receive an 8-percent annual increase in your monthly benefit for each year you postpone claiming payments from ages 67 to 70 . Once you reach 70 , there is no longer any financial advantage to continuing your delay .
Working during retirement If you ’ re employed after attaining your FRA , you can receive your full Social Security benefit . However , if you begin receiving Social Security before your FRA and continue to work , your benefit will be reduced until you reach FRA if you make more than the annual threshold . More specifically , $ 1 in benefits will be withheld for every $ 2 you earn over the annual limit , which changes every year . In 2022 , the earnings threshold is $ 19,560 . In 2023 , the earnings limit will be $ 21,240 a year . The year you reach FRA , the federal government reduces your benefits $ 1 for every $ 3 earned over the cap . In 2022 , this limit is $ 51,960 . In 2023 , it will be $ 56,520 . Keep in mind , if you work during retirement , the reduction in benefits only lasts till you reach FRA . If some of your benefits are withheld while you work during retirement , the SSA gives you credit for the withholding , and you will receive a higher monthly benefit at FRA .
12 CHURCH EXECUTIVE | NOV / DEC 2022