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Social Security retirement benefits are meant to supplement retirement income with contributions made during working years. It may be hard to see the money go missing from your paycheck, but the idea is that when you hit your mid-60s, you will be glad to have some money coming in. A Social Security calculator can help you estimate what benefits you can expect. And while you may have a general idea how your benefits are calculated, here’s some information to help you brush up on the details.

What’s the Maximum You Can Receive?

How much you receive in monthly Social Security benefits is determined by factors including how long you worked in a qualifying job, how much you made, and your age at the time you start collecting those benefits. The maximum Social Security benefit you can receive is set, and that amount changes each year. There is an incentive for people to wait until full retirement age (66 or 67 depending on when you were born) or even longer (until you reach age 70) to start collecting benefits. In 2015, the maximum monthly benefit is $2,663 if you are at full retirement age, but could be $3,501 if you wait to start to receive payments at 70 years old.

It’s important to think about what your average monthly expenses will be and be sure that you have enough external retirement savings to supplement the maximum benefit (and really, the benefit you qualify for) so you know you are in good shape for living the life you want in retirement. But how does the SSA calculate the maximum benefit payments anyway? The math is based on the maximum wage base for the year, the indexed wage base, and any applicable cost-of-living adjustments (COLA) that would apply.

Cost-of-Living Adjustments

So, what exactly is COLA and how does it work? The Social Security Administration realizes that even though you made a certain wage 40 years ago, inflation may mean that it will take more money to live a similar lifestyle. Your other retirement income streams do not offer this type of protection.

But, as conscientious as it sounds, the SSA has actually taken a lot of criticism for this policy lately. For the first 35 years of the program, COLA only dipped below 2% three times but five out of the last six years have seen sub-2% adjustments. While seniors have been complaining that this is not high enough to help them cope with rising costs, inflation has been low for prices across the board lately.

COLA is calculated based on a number called the Consumer Price Index for Urban Wage Earners and Clerical Earners or CPI-W. The CPI-W considers a “basket” of goods to see how inflation is affecting citizen in real time, but many complain the goods used in the calculation are not senior-specific and thus, unrealistic. In 2015, the adjustment was a 1.7% increase, meaning the average Social Security benefit check has increased by $20 to $30 per month this year. If this doesn’t seem like enough to you, it’s important to save even more money or look for ways to cut back in your retirement budget.

Social Security was never designed to be your sole income in retirement. It’s a good idea to calculate your benefits estimate regularly and be sure you are saving enough in other ways like IRAs, 401(k)s and other employer-sponsored programs. The best step you can take for your retirement is getting educated to save early and generously.

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