Anyone who has ever taken a look at their Social Security planning knows how complex the program can be. With a huge number of variables involved in calculating your benefits, it can be a huge challenge to estimate exactly what you'll receive when you decide to retire. But that doesn't mean you should give up on trying to figure out what Social Security is likely to mean for you. To help simplify your planning, below you'll find six key numbers related to Social Security in 2015 that everyone should know about.
1. Social Security tax wage limit: $118,500
Wage earners pay 6.2% of their earnings in the form of Social Security taxes, with employers matching that amount out of their own pocket. Self-employed individuals pay both halves of the tax, adding up to a 12.4% rate. But the Social Security tax only applies up to a certain wage limit, and benefits are therefore calculated based on those maximum taxed earnings, rather than your actual income for a given year. Each year, that number rises with the increase in the national average wage index, so 2015's rise of $1,500 represents about a 1.3% gain from last year's figure. As a result, the maximum amount of Social Security taxes that employees could pay will rise by $93 to $7,347 for those at or above the wage limit.
2. Cost-of-living increase for Social Security benefits: 1.7%
Each year, Social Security benefits are adjusted to reflect changes in the cost of living. Over the past year, the relevant measure of inflation rose 1.7%, defining the rise in Social Security benefits that will take effect in January 2015. The change makes 2015 the third year in a row that Social Security recipients will see a rise of less than 2% in their benefits, as tepid levels of inflation have held back the cost-of-living adjustment from its typical higher level.
3. Earnings required to receive one coverage credit: $1,220
In order to receive retirement benefits, you need to earn 40 coverage credits over the course of your career. Each year, you can earn a maximum of four credits, and the amount of income you need each year rises according to changes in wages. The 2015 figure is up $20 from 2014, so as long as you make $4,880 or more in 2015, you'll get the full four credits available and get that much closer to locking in your Social Security benefit eligibility.
4. Maximum monthly benefit for worker retiring at full retirement age: $2,663
The most that you can receive from Social Security is based on work histories that have the maximum taxable earnings for at least 35 years during a worker's career. Because Social Security benefits are progressive, increases in maximum earnings don't translate to proportional increases in the monthly payments that retirees receive. The 2015 figure is $21 higher than the $2,642 maximum for 2014. For those who choose to wait beyond retirement age to claim benefits, though, additional amounts are still available: Delayed-retirement credits amount to an extra 8% in benefits per year beyond full retirement age.
5. Average monthly Social Security benefit for retired workers: $1,328
Most workers don't come close to receiving the maximum amount of Social Security benefits possible. The average monthly benefit expected in January 2015 amounts to just less than half of the maximum. That's up $34 from the $1,294 average of January 2014, reflecting both the 1.7% cost-of-living adjustment and changes in the typical work history for those receiving benefits in 2015.
6. Maximum amount those under full retirement age can earn in wages and salaries without forfeiting benefits: $15,720
Those who take Social Security early have limits imposed on their benefits if they continue to work. Specifically, those who earn more than a certain threshold have their benefits reduced, losing $1 in benefits for every $2 they earn above the limit. For 2015, that limit is $15,720, up $240 from the 2014 figure.
Losing benefits isn't necessarily as bad as you think, because for each month in which benefits are eliminated, the Social Security Administration will essentially treat you as though you had started getting benefits a month later than you actually did. That will pump up your future monthly benefit amount, helping to offset the money that was taken away from you.
Understanding the ins and outs of Social Security can be a mind-boggling challenge. But by keeping these simple numbers in mind, you can get the basics of what the program will give you when you retire and make sure you're on course to get as much in Social Security benefits as possible both in 2015 and beyond.
Contributed by Dan Caplinger