Jason P. Tank: The Silver Lining of Social Security | Company


Social Security is expected to grant the biggest increase in benefits since 1981 and it will be even bigger than last year’s 5.9% increase. Drum roll please. From January, benefits will increase by 8.7%.

Undoubtedly, inflation has been at the center of financial concerns over the past year. This had a severe impact on stocks and bonds. As bonds fail to provide stability to investment portfolios, it is not uncommon for conservative investors to see their portfolio decline by around 20% for the year. It was ugly and any good news is welcome.

Luckily, for retirees, there’s a silver lining. Since 1975, Social Security has automatically adjusted benefit payments annually to offset the bite of inflation. Unsurprisingly, this policy was put in place at a time of high inflation. Obviously, the political pressure to grant discretionary raises to voters (I mean retirees!) was too much to bear. The solution? Automatic adjustments, as required by law.

The 8.7% rise in inflation for Social Security benefits translates to an increase of $160 per month for the average recipient. Adding to the good news, for the first time since 2012, the monthly Medicare Part B premium that is deducted from Social Security checks will decrease by approximately $5 per month. Bottom line, there will soon be more money in the pockets of retirees.

A common question for those who are not yet collecting Social Security is whether they too will benefit from this 8.7% inflation adjustment. It depends.

If you are over 62, the answer is yes. This is true for those who receive benefits and for those who are eligible but choose to delay filing in exchange for a higher benefit later. For this group, the annual inflation adjustment is built right into their benefit formula.

If you have not yet reached the age of 62, things are more complicated.

For this group, your benefits are based on your earnings history. After ranking the best 35 years of your earnings, Social Security adjusts each year using a different inflation adjustment timing.

Specifically, they use a national average wage index. To correctly calculate a person’s average earnings over their entire career, those earnings in 1985 must be put “on par” with the average wage level in effect today.

Today, historically, the national average wage index has risen faster than the rate of inflation Social Security uses to set current benefits.

But, you guessed it, not this year! So, for those under 62, your projected Social Security benefit won’t quite see the 8.7% increase. Life isn’t quite fair, I guess.

To learn more about Social Security, plan to attend the Money Series at the Leland Township Library on Tuesday, Nov. 15 at 3 p.m. Sign up at MoneySeries.org.

Jason P. Tank, CFA, CFP® is the owner of Front Street Wealth Management, a fee-based consulting firm, and the founder of Money Series, a nonprofit program committed to providing free access to financial education for all . Contact him at (231) 947-3775, [email protected] and www.FrontStreet.com

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