The Social Security announced changes for 2012 that will affect Social Security beneficiaries and retired persons receiving a retirement income. Millions of beneficiaries will notice the changes by New Years Eve.

3.6% Benefit Increase in 2012

The Social Security Administration has implemented a 3.6% increase for beneficiaries receiving social security and SSI benefits . The increase reflects an increase in COLA (cost of living). The COLA increase is the first positive increase since 2009.

Beneficiaries who receive their benefits on the first of the month will see the increase in their benefit payments on the last day in December 2011. January 1st, 2012 is a holiday, so the benefits will be paid on the last day in December 2011. The increase is welcomed by the beneficiaries dependent on their fixed income and have been affected by the cost of daily living increasing while their benefits remain unchanged.

What is COLA?

COLA is the cost of maintaining your standard of daily living. The purpose of a COLA increase is to ensure recipients aren’t strapped by inflation. If it is more expensive to live the same way, but your income does not increase, people aren’t able to spend money and live as they are used to and budgeted for. Their purchasing power becomes nonexistent.

Citizens aren’t able to put money back into the economy and help promote growth. Their benefits are depleted by not adjusting for the increase in groceries and utilities and not receiving a higher income. We have not seen an increase since 2009 because the country did not see an increase in wage earners income. If there is no wage increase to the Urban Wage Earners and Clerical Workers or CPI-W there can be no COLA.

Changes to Retirement Income

The Social Security Administration announced a plan that will affect a small group of citizens receiving a retirement income. The new 2012 adjustments will result in a change to the maximum amount of income earned by retirees subject to a social security tax. People with a retirement income will notice a change from $106,800 to $110,100. The taxable income increase will only affect a 10 million workers in the US. This increase is based on the increase in average wages.

When the average wage increases, the maximum earning for retirees is increased as well. Retirees expecting to remain tax exempt fall into 2 categories. People reaching NRA, or Normal Retirement Age, after 2012 are subject to an earning cap of $14,640.00. People at “full” retirement age (NRA) in 2012 will notice an earrings cap of $38,880.00.

Socialsecurity.gov

If you are in need of more assistance regarding the 2012 Social Security changes, visit Socialsecurity.gov. Their site provides useful links and answers to frequently asked questions from concerned citizens like you. If you provide your e-mail address, you can sign up to receive updates about Social Security changes. Your local Social Security office also provides useful resources and personnel to address your concerns.  Here’s a handy resource to find the closest Social Security office location.

photo credit: Barack Obama

Social Security, also known as OASDI (Old Age, Survivors, and Disability Insurance) or RSDI (Retirement, Survivors, and Disability Insurance) is, put simply, a social welfare program that provides the following assistance to citizens of the United States:

• Disability Benefits
• Retirement Benefits
• Survivors/Death Benefits

This program is financed through the Federal Insurance Contributions Act (FICA), also known as payroll taxes. America’s Social Security Program is the largest federal government program worldwide and also the largest expense in the federal budget. Social Security currently keeps approximately twenty million Americans out of poverty. Social Security helps many many individuals and families. But, as with an social program, it can only help so much. Let’s look at the maximum benefits that can be received for each of the three primary benefits:

Disability Benefits

Disabled workers who meet specific medical stipulations are eligible to receive benefits from Social Security. Such workers must undergo the following tests to determine eligibility: A recent work test that takes into account your age at the time you because disabled, and a work duration test that proves you worked long enough to be eligible.

The maximum monthly disability benefit depends on the worker’s average earnings over his or her lifetime. Last year the average funds received per month by a disabled worker was $1,064. A typical worker with dependents received $1,803. Benefits paid out to wage-earners and families may be decreased if other benefits are being received (such as Workers’ Compensation).

Retirement Benefits

Insured workers can also receive retirement benefits through the Social Security Administration once they reach the age of 62. The amount of possible retirement benefits depend on the worker’s AIME, or Average Indexed Monthly Earnings, and his or her FRA, Full Retirement Age. Basically, the Social Security Administration takes the average amount of money that you earned during your most lucrative working years and then adjusts it to account for the cost of living. The government then looks at the year in which you retired. If you retired earlier than is typical, you will receive fewer benefits. If you retired later than is normal, you receive more.

The maximum amount a retired worker can receive per month depends primarily on his or her age at retirement. An individual retiring this year at the Full Retirement Age can earn a maximum of $2,346 each month.

Survivors (or Death) Benefits

Social Security provides death benefits to surviving spouses and dependents of wage-earners who have made sufficient contributions into Social Security during their lifetimes. All American citizens in the workforce must pay Social Security taxes and a portion of those funds translate into benefits for survivors.

The more a worker contributes to the Social Security System, the greater his or her family’s benefits will be. Typically, the following guidelines apply:

• The spouse of the deceased at Full Retirement Age or above receives 100% of the deceased worker’s basic benefit amount.
• The spouse of the deceased over 60 but under the FRA is eligible for 71-99%.
• The spouse of the deceased of any age caring for a child under 16 receives 75%.
• Children of the deceased worker get 75% of the total benefit amount.

There is also a limit imposed upon a family – generally 150-180% of the deceased worker’s benefit amount.

photo credit: Looking&Learning

Some people are genuinely surprised when they learn that their social security income can be taxed. In certain instances, they may not have factored tax payments into their retirement planning. In other instances, people may continue working even though they’re eligible for social security benefits.

photo credit: mikeg626

Tax Rates and Social Security

There are a few factors that will be used to determine what of tax rates you’ll follow when paying on social security. The two top ones are total income and marital status. When it is time to pay these taxes, you will need to pick up a Form SSA-1099. The form will outline total benefits, but if you wish to know how much is taxable will require doing some calculations.

Social Security as Your Only Source for Income

Before looking at how much might be taxable if you are still working, you need to understand something first:

In fact, you may not need to file a federal income tax return. The IRS includes monthly survivor and disability benefit, but doesn’t include additional security income payments, which aren’t taxable. It is the other income that comes in that may subject you to taxes on a portion of your government benefits.

The Numbers and Social Security

If you want to know your potential tax liability, you should start by adding about half of your Social Security benefits to other income. There are additional factors that must be accounted for at this stage. You’ll need to record tax-exempt interest earned, savings bond interest, and other benefits that could be excluded for whatever reason. If you come up with a figure that larger than the base for your filing status, then you’ll to pay taxes on the difference.

Base numbers are $25,000 for a single head of household or widow/widower with a dependent, $25,000 for married filing separately who did not live together during the tax year, and $32,000 for married couples filing jointly. Finally, there is no charge for married persons filing separate returns that who lived together during the tax year.

All of this makes up the raw data when you want to find out how much your social security will be taxed. It’s possible for up to half of your Social Security benefits to be taxed if you’re a single filer and your total income plus half the benefits exceeds $34,000. The number is $44,000 if you’re married and have filed jointly.

Can’t Avoid It

There’s no getting around the fact that you’ll have to pay taxes on Social Security if you income falls into the sort of rates and guidelines outlined here and in the IRS’s latest tax charts. You’ll really have to do the math to see where you fall. Check out the IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits for more details.

It is important to take the time find out as much as you can so you pay the appropriate taxes on income received during a given tax year, so you do not take off more of your benefits than is necessary.

The age of 62 is quickly approaching.  The important decision of when to take your social security is haunting you.  Do you take it now or wait?  Before you decide, let’s first understand what social security is really about.

Social Security Comes In Three Flavors

When it comes to Social Security, you’ve got three alternatives: Take it early, wait until your normal retirement age or wait even longer. The normal age for receiving Social Security retirement benefits is a moving target (see table below). You can still elect to take benefits early at age 62, or wait as late as age 70. Given the range of choices, as your 62nd birthday approaches, you’ll likely be thinking about more than just how all those candles are going to fit on the cake.

Before you consider whether it makes sense to take Social Security benefits earlier or later, let’s take a look at some of the rules.

Do You Know What Your “Normal Retirement Age” Is?

Normal retirement age (abbreviated as NRA, but sometimes called full retirement age) is when you’re eligible to receive full Social Security benefits. The normal retirement age used to be 65 for everyone. However, under current law, 2002 was the last year anyone age 65 could receive full benefits. If you were born in 1938 or later, your normal retirement age is some point after age 65—all the way up to age 67 for those born after 1959.

Your Social Security Benefit

Don’t Start Too Early

If you choose to start receiving your Social Security check before your normal retirement age, your benefit is reduced by five-ninths of 1% for each month before that age, up to 36 months. If you start more than 36 months before your normal retirement age, the benefit is further reduced by five-twelfths of 1% per month.

For example, if your normal retirement age is 66 and you elect to start benefits at age 62, there are 48 months of reduced benefits. The reduction for the first 36 months is five-ninths of 36%, or 20%. The reduction for the remaining 12 months is five-twelfths of 12%, or 5%. So, in this example, the total benefit reduction is 25%.

… and you’ll get credit for delaying

If you delay retirement until after your normal retirement age (prior to age 70), you typically get a credit. For example, say you were born in 1944. Your normal retirement age is 66 but you intend to take your benefits at age 68. By waiting the extra two years, you get a credit of 8% per year, which means your benefit is 16% higher than the amount you would have received at age 66.

If waiting seems hard to do, you’re not alone. Even though most people would probably be better off delaying benefits, 76% of women and 71% of men took early Social Security

Next time we’ll look at factors to consider when deciding to take your Social Security benefits.