Since its inception in the 1930’s, many retirees have depended on Social Security benefits to supplement or provide for their monthly retirement income. While the status of many federal programs may seem uncertain post-election, specific and definite changes to Social Security were released by the Social Security Administration (“SSA”) this past October.
Take a look at the list below to see if and how your benefits or eligibility will be impacted by the new changes.
1. Folks are getting a raise – Many seniors wince each year that passes without a cost of living adjustment (“COLA”) to their Social Security benefits. The good news is that there will be a COLA adjustment for 2017; the bad news is that it’s the smallest increase on record. But, every little bit counts, right? According to the SSA’s press release, the COLA will rise by 0.3%. From estimates provided by the SSA, the average retired worker was receiving $1,350.64 a month, equating to a $4.05 monthly increase based on a 0.3% COLA.
2. Wealthier individuals will pay more into the program – Contributions to the Social Security fund are made by way of payroll taxes on all working adults. Typically, the payroll tax has been 12.4% for income between the brackets of $1 to $118,500. Any income earned above $118,500 was not subject to the Social Security tax. Practically speaking, this meant that about ninety percent of Americans were paying tax on all of their earned income. The remaining ten percent were paying a much smaller percentage of their earned income because they made more than the $118,500 cap. Heading into 2017, we will see a change in this upper-limit cap. The high-end taxable amount will increase to $127,200, meaning that more wealthy workers will pay more towards Social Security than they did in 2016.
3. The maximum monthly benefit will increase – While your monthly benefit is based on your earnings history, there is a cap on how much Social Security you can receive each month. For 2016, the maximum benefit was $2,639. In 2017, this amount will increase to a maximum of $2,687 – a bump of $48 per month. This may seem like chump-change, but it amounts to an annual increase of $576. Retirees who depend on Social Security as their main source of income are no doubt likely to see the bump, which is a welcomed change to the decrease in the maximum amount that happened in 2016.
4. Earning your benefits means you’ll have to work a little harder – What does this mean? We Americans need to work throughout our life to guarantee we qualify for Social Security income later in life. The figure that workers aim for is 40 lifetime work credits. These credits are calculated based on your yearly earnings, and you are eligible to earn four credits each year. In 2016, in order to earn the maximum four Social Security work credits, an individual must earn at least $5,040 (which translates to $1,260 per work credit). This threshold for credits will increase to $5,200 next year, so workers will have to earn an extra $160 for the year to secure all four-work credits.
5. Full retirement age is starting to go up – Most of us knew this was coming. It’s been over three decades since Congress passed legislation to alter the full retirement age – the age at which you become eligible for 100% of your monthly benefit. Retirees born in 1955, however, may be in for a surprise in 2017 if they decide to file for early benefits at age 62. The reason is that beginning in 2017, the full retirement age will increase by two months for those born in 1955, to 66 years and 2 months. This two-month increase will continue with each successive year, meaning that retirees who file for early Social Security benefits could see a bigger reduction in their monthly benefit than their predecessors. Conversely, higher-end benefits – which stop accruing by age 70 – will no longer max out at 132% of the full retirement age benefit. Instead, 2017 will begin a new cap somewhere between 124% and 132%. This cap will continue for the coming five years.
6. Early retirees will see an increase in withholding thresholds – Perhaps not a well-known fact is that retirees who take early retirement benefits are subject to having some or all of their benefits withheld by the SSA if they have too much earned income. For example, in 2016, retirees who took early benefits would have $1 in benefits withheld for each $2 in earned income over $15,720. In 2017, this threshold will be higher. Early filers can earn up to $16,920, or an extra $100 a month before the withholding begins to kick in.
7. Disability thresholds will increase – While generally associated with retirement, Social Security benefits are also available to individuals who are disabled and unable to work. In 2016, non-blind disabled individuals had to earn $1,130 or less per month to be considered for disability income from the SSA. The figure for the blind was $1,820 a month. These thresholds are getting a boost in 2017 – non-blind disabled persons can now earn an extra $40 a month, or $1,170, and still qualify for benefits from the SSA. Meanwhile, individuals who are blind will see a boost of $130 a month, bringing their threshold up to $1,950.