• Try Forefield Advisor

  • Calendar

    November 2010
    S M T W T F S
    « Oct   Dec »
     123456
    78910111213
    14151617181920
    21222324252627
    282930  
  • Categories

  • Archives

  • www.forefield.com

Social Security–No COLA Adjustment Doesn’t Tell the Whole Story

The Social Security Administration recently announced that there would be no cost-of-living adjustments (COLAs) for Social Security benefits for 2011. That means individuals currently receiving a Social Security benefit will not receive an increase for 2011. What you may not have realized is that Social Security benefits for those turning age 62 in 2011 will generally be less than for those who turned age 62 in 2010.

The national average wage index is used to index a worker’s lifetime earnings so that future Social Security benefits will reflect the general rise (or fall) in the standard of living that occurs over the worker’s lifetime. The indexed earnings are then used to calculate the worker’s average indexed monthly earnings (AIME). AIME is used with certain bend points to calculate the worker’s primary  insurance amount (PIA), the basic benefit upon which all Social Security benefits are generally based. PIA is also used with certain other bend point to calculate the maximum benefit for a family.

The Social Security Administration has also announced the national average wage index and the bend points used to calculate Social Security benefits for persons turning age 62 in 2011. These amounts are lower than their levels for persons turning age 62 in 2010. As a result, for persons with comparable amounts of earnings over their lifetime, the level of benefits for persons turning age 62 in 2011 will be lower than the level of benefits for persons turning age 62 in 2010.

This is the first time that there has been a reduction in Social Security benefits due to indexing. Planning for retirement may have just gotten a little more complicated.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: