Millions of older Americans today receive a monthly benefit from Social Security. If you recently signed up to start taking benefits, you may be appreciative of the extra income.
But if you're new to Social Security, it's important to know what to expect. Here are a few aspects of the program you should be aware of.
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1. Your benefits are eligible for a yearly COLA
Let's imagine you just signed up for Social Security and are receiving $1,800 a month. That check may be helping you cover the bills for now, but thanks to inflation, in a decade, you may not get $1,800 worth of buying power out of it.
The good thing is that Social Security is designed to account for inflation via annual cost-of-living adjustments, or COLAs. The purpose of COLAs is to help seniors maintain their buying power, so the monthly benefit you start out collecting has the potential to increase over time.
That said, it's not like there's a preset COLA that will apply to your benefits every year. Annual COLAs are based on recent inflation data, so it's not as if your Social Security benefits will rise by a fixed percentage per year, like 3% or 4% annually. You may have a year when your benefits increase 6% and another year when they don't increase at all.
2. You can work while receiving benefits, but you may need to be mindful of the earnings-test limit
Social Security allows recipients to receive monthly benefits while earning money from a job at the same time. Once you reach full retirement age (FRA), which is the age at which you're entitled to your monthly Social Security benefit in full based on your personal earnings history, you can earn any amount of income without risking having benefits withheld. But if you're working and receiving Social Security prior to FRA, you'll need to be mindful of the earnings-test limit.
That limit changes on a yearly basis. This year, it's $22,320, or $59,520 for those who will be reaching FRA at some point in 2024 but haven't yet reached that age.
Exceeding the earnings-test limit will result in withheld benefits, but they won't be forfeited. You'll get that money back once you reach FRA. But it's a good thing to know how much you can earn without a negative impact on your monthly benefits at present, assuming you haven't reached FRA.
3. Benefits could be in for cuts
Social Security is facing some serious financial challenges that could make it difficult to keep up with scheduled benefits for the long haul. The program's trust funds are expected to run dry come 2034. Once that happens, Social Security may have to reduce benefits universally.
This is something to be mindful of early on -- before you get used to a certain standard of living based on the monthly Social Security income you're getting. You may want to make a point to keep your living costs as low as possible so you can bank some of your Social Security payments as savings in case those monthly checks shrink down the line.
You may also want to consider part-time work while you're still able to do it. The more money you're able to save as a retiree, the easier it might be to withstand benefit cuts should they come to be. (There's a chance lawmakers will manage to prevent them.)
You might appreciate the monthly benefit you've recently started getting from Social Security. But keep these important points in mind if you're new to the program and want to manage your finances accordingly.
