Social Security is a government-run retirement program that provides a source of income for retirees, as well as for disabled individuals and surviving family members. It is funded through payroll taxes, and benefits are determined based on an individual’s earning history and the age at which they begin receiving benefits.
Retirement planning is the process of preparing for one’s financial needs during their retirement years. This includes estimating how much money will be needed to support oneself during retirement, and developing a strategy for saving and investing to reach those goals.
Social Security benefits are calculated based on an individual’s earnings history, and the age at which they begin receiving benefits. The full retirement age for Social Security is currently 67 for those born in 1960 or later, and 66 for those born between 1943 and 1959. Individuals can begin receiving benefits as early as age 62, but the benefit will be reduced if taken before the full retirement age.
Retirement planning typically involves estimating how much money will be needed to support oneself during retirement, and developing a strategy for saving and investing to reach those goals. This can include contributing to a employer-sponsored 401(k) or individual retirement account (IRA), and investing in other financial products such as stocks, bonds, and real estate.
Social Security benefits can help supplement an individual’s retirement income, but it is generally not enough to support an individual throughout their entire retirement. It is important to plan for retirement by saving and investing, and to consult financial advisors to create a comprehensive retirement plan.
Recent Social Security Changes
There have been a number of recent changes to the Social Security program in the United States. Some of the most notable changes include:
The Bipartisan Budget Act of 2015: This act made changes to the way Social Security benefits are calculated for individuals who claim benefits early. Specifically, it eliminated the ability to file for benefits and then suspend them to earn delayed retirement credits.
The Social Security Act of 2018: This act made changes to the way Social Security beneficiaries are notified of potential overpayments. It also gives the Social Security Administration more authority to recover overpayments and to waive overpayments in certain situations.
The SECURE Act of 2019: This act includes a number of changes to the Social Security program, including raising the full retirement age from 67 to 70, requiring beneficiaries to claim benefits at their full retirement age, and increasing the amount of earnings subject to payroll taxes.
The CARES Act 2020: This act included a provision that allows individuals who are impacted by the COVID-19 pandemic to withdraw up to $100,000 from their retirement accounts without penalty.
The American Rescue Plan Act of 2021: The act increases the child Tax Credit and makes it fully refundable and also increases the Additional Child Tax Credit.
It is important to note that not all of these changes have been implemented yet and some of them are still under discussion. It’s always advisable to check the Social Security Administration’s website for the most up-to-date information on changes to the program.
The Impact of Social Security Changes on Retirement Planning
The impact of recent changes to the Social Security program on retirement planning can vary depending on the specific change and an individual’s personal financial situation.
The change to the way Social Security benefits are calculated for individuals who claim benefits early, by eliminating the ability to file for benefits and then suspend them to earn delayed retirement credits, can make it more difficult for some individuals to maximize their Social Security benefits. This may make it more important for those individuals to plan for retirement by saving and investing more aggressively in order to make up for the potential reduction in Social Security benefits.
The SECURE Act of 2019, which raises the full retirement age from 67 to 70, requiring beneficiaries to claim benefits at their full retirement age, and increasing the amount of earnings subject to payroll taxes, could also have a significant impact on retirement planning. This could make it more difficult for some people to rely on Social Security as a primary source of income during retirement, and may encourage them to save and invest more.
The CARES Act 2020 provision that allows individuals who are impacted by the COVID-19 pandemic to withdraw up to $100,000 from their retirement accounts without penalty, can provide an emergency financial cushion for those who are struggling financially during this crisis but it will have a negative impact on their retirement savings
The American Rescue Plan Act of 2021 increasing the child Tax Credit and makes it fully refundable and also increases the Additional Child Tax Credit, would provide extra financial support for families but it would not have a direct impact on retirement planning.
Overall, recent changes to the Social Security program may require individuals to re-evaluate their retirement plans and make adjustments accordingly, including saving and investing more, working longer, or seeking professional financial advice.
How To Calculate Your Own Social Security Benefits
Calculating your Social Security benefits can be a bit complex, as the benefit amount is based on several factors, including your earning history and the age at which you begin receiving benefits. The Social Security Administration (SSA) uses a formula called the “Primary Insurance Amount” (PIA) to calculate your benefit amount.
The PIA formula takes into account your average indexed monthly earnings (AIME) during your 35 highest-earning years, and applies a set of progressive “bend points” to determine your PIA. The bend points are adjusted each year for inflation.
To calculate your AIME, the SSA takes your total earnings for each year, indexed for inflation, and divides the sum by the number of months in the 35-year period.
Once your PIA is determined, it will be reduced if you choose to begin receiving benefits before your full retirement age, which is currently 67 for those born in 1960 or later, and 66 for those born between 1943 and 1959. If you delay benefits past full retirement age, your benefit amount will increase.
It’s important to note that the Social Security Administration offers online tools that can help you estimate your benefits, such as the Retirement Estimator and the Benefit calculators, which can give you an idea of what your benefits might be based on your earnings history and other factors.
You can also create an account on the Social Security Administration website and view your Social Security statement, which provides you with an estimate of your retirement benefits based on your current earnings and the number of years you have worked.
Sample Social Securiy Benefits for a Retired Store Manager
Here’s an example of how the Social Security benefits might be calculated for a retired store manager, but it’s important to note that the actual benefit amount would depend on the individual’s specific earnings history and other factors.
For the purpose of this example, let’s assume that the retired store manager:
was born in 1960 or later, so their full retirement age is 67
has a 35-year earnings history with an average indexed monthly earnings (AIME) of $4,000
decides to begin receiving benefits at their full retirement age of 67
Using the PIA formula, the SSA would first determine the retired store manager’s AIME by taking their total earnings for each year, indexed for inflation, and dividing the sum by the number of months in the 35-year period.
Next, the SSA would apply the bend points to the AIME to determine the retired store manager’s PIA. The bend points for 2021 are $926, $5,564 and $8,898.
In this example, we assume that the store manager’s AIME falls between the first and second bend points, so the calculation would be:
($5,564 – $926) * 90% + $926 * 32% + ($4,000 – $5,564) * 15% = $1,939 per month
So, the retired store manager would receive $1,939 per month in Social Security benefits if they begin receiving benefits at their full retirement age of 67.
Please remember that this is just an example, and the actual benefit amount would depend on the individual’s specific earnings history and other factors.
