Retirement Benefits from Social Security

Social Security benefits probably will be an important source of income once you retire. The amount you receive is based on a number of factors, including:

• Your earnings history
• The age at which you retire
• Annual Cost of Living Adjustments made to payment levels

Earnings History

The Social Security program limits the amount of earnings subject to the Social Security tax and then uses that same annual limit in examining your income to determine your basic benefit level.  The benefit level calculation takes into account your highest earnings years over a 35-year period to determine your basic benefit. The annual taxation limit and resulting income limit for the basic benefit calculation is $117,000 for 2014.

Retirement Age

If you retire at the normal retirement age, you’ll receive the basic benefit. If you retire before the normal retirement age, beginning at age 62, the benefit is adjusted downward. For many years, the normal retirement age was 65. However, for those born in 1938 or later, the normal retirement age is gradually increasing to age 67 until it reaches 67 for people born after 1959.

Cost of Living Adjustments

The Social Security Administration adjusts the payment levels each year to reflect increases in the cost of living (inflation). The 2014 adjustment was 1.5%, the 2013 adjustment was 1.7% and the 2012 adjustment was 3.6%.

What Does This All Mean for You?

Here are some typical monthly benefits for 2014:

• Maximum benefit retiring at normal retirement age – about $2,642
• Average benefit for all retired workers – about $1,294
• Average benefit for an aged couple with both receiving benefits - about $2,111
• Average benefit for an aged widow(er) alone - about $1,243

What Should You Do?

First, make sure your Social Security records are accurate. You should receive a statement each year with your earnings history and an estimate of what your retirement benefit would be.  Review it carefully and contact a local Social Security office if you find an error.

Finally, note that Social Security alone probably won’t enable you to have the retirement lifestyle you want. Therefore, you should take advantage of other retirement plans (employer-sponsored plans and IRAs) and save even more.