Ask the Expert: Social Security

Gail,

People who would like the equivalent of the old 25% reduction for receiving early benefits at age 62, need only delay the same number of months their FRA is past 66.  So someone with a FRA of 66 years 6 months, could delay taking SS until 62 years, 6 months to receive a 25% reduction instead of the 27.5% reduction at 62.  For age 67 FRA, start at age 63.

The reason the SSA may not push it is the 5% less payout .  That goes along with what I have noticed about the SSA pushing taking a 6 month retroactive start date for people that waited past their FRA.  The 6 month retroactive start date will save SS 4% for the life of the benefits payments.

@drlindamc The short answer is that in cases where inflation is virtually non-existent, the worst thing that can happen is that there is no COLA and your benefits are unchanged. That has happened a few times in recent years, most notably post-recession in 2009 and 2010 and again in 2015 (since established in 1975, those were the only three times that has happened; see here). So, yes, your total monthly benefits starting in January 2022 will always be that amount or higher going forward.

Hello @WebWiseWoman   I'm very sorry to hear you missed the deadline due to homelessness. This is certainly a very difficult time for a lot of people, and I hope things are better for you now.

My expertise is in Social Security and not Medicare, so I think it's better I not give any advice on this. I was able to track down this from AARP, and this from Medicare that describe the penalty in more detail and hope you find them helpful. Good luck!

@Agolfer The COLA increase should really be thought of as applicable to current recipients in terms of adjusting how much they were receiving this past year versus next year. For new recipients, the cost of living is built in to the formula used to calculate your benefits. Without getting super technical, it is essentially already baked in whenever you would apply. So in terms of thinking about when to claim, the COLA should not play any role in your decision-making. What would make sense to consider, however, is that for every year you wait, you are essentially increasing the size of your benefit by about 8%. Additionally, if you wait to claim until at least your full retirement age, which is 66 and a few months, you may be helping your spouse -- if you are married. See here for your exact full retirement age and the impact on spousal benefits.

  @8strts  Good morning. The announcement on any change in the Medicare Part B monthly premium isn't expected until November, although early indications are that it will be around $10. Many Social Security beneficiaries will see increases in their monthly benefit well above this amount. It's certainly something to keep a close eye on. We'll know for sure in a few weeks.

@g373896p, Social Security benefits are often reduced for people with work histories in “uncovered” employment (meaning they were employed in jobs where they did not pay Social Security taxes), and because of this work receive a pension from a public-sector government retirement system (typically from government employment at the state or local level). This reduction in Social Security benefits is known as the Windfall Elimination Provision, or WEP.

WEP causes a change in how the worker Primary Insurance Amount (PIA) is calculated (resulting in a lower PIA). Because dependent benefits are based on the PIA of the worker, the benefit for an ex-spouse is reduced. Note: for an ex-spouse to be eligible for spousal benefits, the marriage must have lasted at least 10 years.

Because the rules for WEP can be complicated, I recommend reaching out to Social Security if you want to find out the specific impact on benefits. If interested, this document explains WEP in greater detail.

Hi @ReTiReD51, I will tackle both of your questions, and not just because I too enjoy the Boss.

On the TRUST Act, AARP has been advocating against its passage (if you want to get involved, head over here). While we would like to see the program updated, we think the forum for that is in the open in the actual legislative committees that oversee the program. We have seen from past efforts that punting these decisions to closed-door commissions does not allow for public debate on the issues and can result in harsh benefit cuts.

In terms of subjecting people making in excess of $400,000 annually to the payroll tax (for 2022, people only pay payroll taxes on the first $147,000 of their wage income), we have not taken a formal stance there. We are certainly considering any option that would bring more money into the system to make it more financially stable for the long-term. One of the reasons people are looking at this approach is that we have seen a much larger increase in wage income above that cap. When the system was last updated in 1983, about 90 percent of all earnings were below the cap, but due to large growth in earnings for middle- and upper-income workers, the system is now only capturing 83 percent of all wages. If you want a more detailed explanation, check out this report we published last year.

Good morning, @GailL1 You are correct; the cost-of-living adjustment (COLA) is based on changes in the CPI-W, more formally known as the Consumer Price Index for Urban Wage Earners and Clerical Workers. According to the Social Security Administration (see A6 reform provision here), switching to the CPI-E would increase the annual COLA by about 0.2 percentage points on average. For just a year or two, the impact is small; however, over a 20 to 30-year period of receiving benefits the difference can add up. The difference largely comes from the greater weight the CPI-E puts on medical costs.

 @DJB75 The increase we are speaking about here is an increase in Social Security benefits. Your payroll taxes will stay the same (6.2% of your paycheck, or 12.4% if you are self-employed). The only change on that side of the ledger for 2022 is that the cap on income taxed for Social Security moves from about $143,000 to $147,000, but it does not sound from your question as though you would be impacted by that change.