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What You Need to Know about Social Security

April 11, 2024 • | Curran Estate & Elder Law, PLLC
But if you're new to Social Security, it's important to know what to expect. Here are a few aspects of the program you should be aware of.

For millions of Americans, a monthly Social Security deposit into their bank accounts is a crucial source of retirement income. For those who have just started receiving benefits, there are a few basics to know, according to a recent article from NASDAQ: “New to Social Security? 3 Things You Need to Know.”

Social Security knows inflation is a problem for seniors living on fixed incomes. If you’re receiving $1,800 a month right now, in five years, the same amount of money won’t have the same purchase power as it does today. Every year, Social Security examines inflation and adjusts benefits, known as the Cost Of Living Adjustment, or COLA.

COLA’s goal is to ensure that your buying power stays the same over time. It is not a pre-set amount but is based on inflation data. Unlike an annuity, which increases at a certain rate, Social Security COLA rates are reviewed and increased depending on inflation data. There may be one year when benefits increase a lot, but there will also be years when increases are practically nil if inflation is low.

You may continue to work and receive Social Security benefits, but if you have not reached Full Retirement Age, your benefits will have an earnings test limit. Full Retirement Age ("FRA") is when you can collect your monthly benefit in full based on your past earnings history. After this date, based on your birthday date, you can earn as much as possible without any benefits being withheld.

If you have started taking benefits before that time, an earnings-test limit will deduct a certain amount from your benefits. The limit, like the COLA, changes every year. In 2024, it’s $22,320 or $59,520 for wage earners who will reach their FRA in 2024 but haven’t gotten there yet.

The funds are not lost forever if you earn more than the limit. When you reach FRA, the money will be returned to your monthly benefit. But you must consider the deduction if you’re creating a household budget.

Social Security does have serious challenges that may impact your benefits. The dramatic headlines about Social Security trust funds running out of money come in waves, but there are some real problems ahead to be aware of. The trust funds are expected to run dry in 2034. While a lot can happen in 10 years, seniors would be wise to try to bank some of their benefits in case they shrink. The more saved, the easier it may be to manage if and when these cuts occur.

While Congress may always act to fund the trusts, working a part-time job or as a consultant in your field may be an excellent way for many retirees to prepare for any future cuts and reduce their dependency on Social Security benefits.

Reference: NASDAQ (March 18, 2024) “New to Social Security? 3 Things You Need to Know”

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