Social security is a huge part of the income most retirees receive, and a major component of financial planning for those approaching retirement is ensuring that they can receive as much of their social security benefits as possible. However, there is much talk about the financial difficulties that the social security program has been experiencing lately, and some have discussed making redundancies to ensure that retirees and others can continue to receive benefits indefinitely in the future.
Still, one big surprise to many is that we are still working on our decisions through solutions that legislators agreed to when Social Security went through its last financial crisis. Although this happened in the early 1
A Brief History of Recent Social Security A Set of Financial Challenges
Most people understand the basics of why Social Security faces difficulties. There are now more retirees than ever before and fewer workers supporting each of them through social security payroll taxes. This squeezes the program's finances.
However, this is not the first time that Social Security has faced this challenge. More than 35 years ago, MPs realized that the program's funding system was doomed to fail. Instead, lawmakers introduced a series of major changes to the program, including higher payroll tax rates, savings in Social Security trust funds, and a gradual increase in the full retirement age from 65 to 67.
These decisions are not & # 39; t all that is different from what today's MPs seem to have imposed. At the time of these proposals, however, since the early 1980s, no one wanted to penalize those in or near retirement. Therefore, they agreed that the full retirement age would remain at 65 for more than a decade. Starting from those who turned 62 in 2000, the full retirement age will rise from 65 to 66, increasing by two months each year. Thereafter, a pause of 12 years will maintain the full retirement age of 66 until another phase of two-month annual increases becomes effective for those who have reached the age of 62 in 2017.
For those who reach the age of 62 in 2020, the full retirement age will be 66 2/3. That is 66 1/2 for those who turned 62 in 2019.
Costs to increase for two months
Two months may not sound like that and there will be no huge difference for each individual benefit. But it will be noticeable.
For example, for workers claiming entitlement to 62, the impact of the increase would be that they would be forced to claim 56 months earlier rather than 54. According to the formula governing claims earlier, this would result in to a further reduction of five to six percentage points. Early applicants will now receive 71 2/3%, not 72 1/2% of their full retirement benefit.
This is different from $ 12.50 a month for someone who will be entitled to $ 1,500 a month full retirement benefit based on their employment history. Again, this is not a huge amount, but losing $ 150 a year can be a big deal.
No more paying for waiting
Moreover, waiting until full retirement age doesn't really solve the problem. When the full retirement age was 66 1/2, workers who retire at 66 2/3 would receive delayed retirement credits, which would add 1 1/3% to their monthly benefits. That would be an extra $ 20 a month – but the 62-year-olds in 2020 won't get it because of the increased retirement age.
This will not be the last time new retirees face these benefits reductions. There are two more groups of changes planned after 2020 that will take effect for the 62-year-olds in 2021 and 2022. If you are in these age groups, then it is vital to understand that the benefits you plan to receive will reflect the reductions that have been in works since the 1980s. If you do not take them into consideration, you may be left wondering why you are not getting as much social security insurance as you initially expected.