When you are living on a fixed income, there are challenges, because the cost of living is typically going to rise year-by-year. To account for this, the Social Security Administration can apply annual cost-of-living adjustments if the consumer price index justifies an increase.
Increases are quite modest when they are applied. As a case in point, there was a cost-of-living adjustment for 2015, and it was just 1.7 percent. That doesn’t sound like it would help much, but things are even worse this year. The Social Security Administration has announced that there will be no COLA at all for 2016.
Retirement Planning Is Essential
The fact that there is not going to be a cost-of-living adjustment this year is not very good news for those who are receiving Social Security benefits, and benefits are modest in the first place. The exact amount that you will receive will be calculated based on your top 35 earning years. To find out what you can expect to receive based on your earnings, you can register your account on the Social Security Administration website.
To give you a general idea, the average annual benefit in 2015 is $1328 for a single benefit recipient. The average for a married couple when both people are receiving benefits is $2176 at the present time.
You pay into the Social Security program when you pay FICA or self-employment taxes. There is a limit to the amount of income that can be taxed for Social Security purposes. If you paid the maximum throughout your highest 35 earning years, you would qualify for the maximum Social Security benefit.
During the current calendar year, the maximum amount that can be subject to these taxes is $118,500, and the maximum benefit is $2663 per month. As you can see, even if you were fortunate enough to receive the maximum benefit, it would not be enough to finance a truly comfortable retirement.
If you want to be able to retire and enjoy your free time, you have to make sure that you have sufficient resources above and beyond your Social Security benefit. For many, an individual retirement account will be part of the plan. Employers often offer 401(k) plans, and many will match contributions that are made by employees up to a certain point. This is a great opportunity to build a retirement nest egg if you take full advantage of the employer matches.