Ever since the Social Security Administration (SSA) was launched in 1940, millions of people, specifically retirees and the disabled, have relied on this income to live off-of in their retirement years.
In fact, 3 in 5 retired seniors rely on their social security benefits to provide at least half of their monthly income. Because this impacts so many Americans, around 61 million to be precise, here are five social security rules that are changing in 2017 and that may affect you.
1. There will be modest increase in payments.
“Social Security payments will increase by 0.3 percent beginning in January 2017,” writes Emily Brandon, senior editor for Retirement at U.S. News. “This cost-of-living adjustment is estimated to result in the typical Social Security beneficiary receiving an extra $5 per month.”
Additionally, in 2017 the average monthly payment for retired workers is anticipated to be $1,360, with retired couples receiving an average of $2,260. That’s up from $2,254 in 2016. Brandon adds that, “Social Security benefits are adjusted each year to keep pace with inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers.”
In the past, cost-of-living adjustments have ranged anywhere from zero in 2010, 2011, and 2016 to 14.3 percent back in 1980.
Furthermore, the Social Security Administration’s (SSA’s) annual financial review will impact the cost-of-living-adjustments (COLA), specifically for seniors and disability applicants. For 2017, COLA will 0.3 percent, which will bring the maximum monthly benefit payments available up to the following;
- $1,171 for Social Security Disability Insurance (SSDI)
- $735 for Supplemental Security Income (SSI), per individual recipient
- $1,103 in SSI, for a couple where each individual receives benefits
“This COLA change additionally means there are some adjustments that apply to eligibility rules,” notes the Disability Benefits Center. “Specifically, the SSA only allows an applicant to receive SSDI if he or she doesn’t earn more than a certain dollar figure each month.”
The following figure is what the SSA considers Substantial Gainful Activity (SGA) for 2017:
- $1,950, for the blind
- $1,170, for non-blind
There will be some applicants who can receive SSDI who will be able to work and receive their monthly disability payments. When working there will be certain months that count towards a Trial Work Period (TWP). “This period may last awhile and only those months in which earnings exceed a particular level count toward the TWP.” For 2017, the TWP threshold has been increased to $840 per month.
“Although COLA has affected a number of eligibility thresholds, the financial resource limit for SSI eligibility hasn’t changed. For 2017, this limit remains $2,000 per month for an individual or $3,000 per month for a couple,” adds the Disability Benefits Center.
2. Earn more without affecting benefits.
The AARP’s Eileen Ambrose says that, “Taking retirement benefits early while still working can temporarily reduce your monthly check — depending on your annual income.” For the upcoming year, this means that “for every $2 you earn above $16,920, one dollar of benefits will be withheld.
In the year you reach your full retirement age, $1 of benefits will be withheld for every $3 earned above $44,880.” After you’ve reached full retirement age, “Social Security will recalculate your benefits to give you credit for those withholdings.”
As a reminder, for anyone born between 1943 and 1954, the full retirement age (FRA) is 66. In 2017, however, the FRA will increase to 66 years and 2 months for anyone born in 1955. “This increase will continue each year, reaching 67 years for those born in 1960 or later,” says Ambrose.
3. The rich are going to have to pay more.
“The SSA sets a payroll tax earnings cap each year that dictates what earned income is subject to the 12.4 percent tax that funds Social Security,” writes Sean Williams for The Motley Fool.
For example in 2016, any earned income that was between $1 and $118,500 was subject to the payroll tax. Any earned income above this amount was not taxable. “This means that roughly 9 in 10 Americans are paying this 12.4 percent tax on every dollar they earn, whereas the wealthy are paying tax on a much-smaller percentage of their earned income,” states Williams.
For 2017, “we’re going to see a change as the payroll tax cap rises to $127,200 from $118,500.” While employees who are making less than $118,500 won’t see any changes, anyone “earning in excess of this amount will be paying more into the program.” This means that if “you’re employed by someone else, it could cost you an extra $539 a year (since employers and employees split payroll tax responsibility down the middle, 6.2 percent each).” The self-employed, however, who are responsible for the full 12.4% tax, could be responsible for paying an additional $1,079 a year in payroll taxes this year.
4. File & suspend and restricted applications.
Until recently, savvy retirees took advantage of loop holes that let them boost their benefits. The more popular examples are the “file and suspend,” which was eliminated in May of 2016, and the “restricted application.” “While those who turn 62 on or after Jan. 2, 2016 are no longer eligible to file a restricted claim under the new rules, older retirees may still have the option,” writes Kurt Rossi, a certified financial planner.
“Bottom line – the perceived loop holes in Social Security have been closed and now a spouse can only receive the larger of their own benefit or their spousal benefit – no more sophisticated switching strategies that allowed for the movement between their spousal benefit and their own benefit after they have deferred it,” Rossi continues.
Rossi adds that, “While the loss of these claiming options could lead to less lucrative social security benefits for those that could have taken advantage, it may also represent the beginning of strategies designed to improve the long-term solvency of Social Security.”
5. Earning your benefits means you’ll have to work a little harder.
According to Wes Moss, the host of the personal finance radio show ‘Money Matters,’ “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”. Moss adds that, “These credits are calculated based on your yearly earnings, and you are eligible to earn four credits each year.”
During this past year an individual had to earn a minimum of $5,040 (which translates to $1,260 per work credit) in order to earn the maximum four Social Security work credits.
In 2017, this threshold for credits will jump to $5,200. This means that workers have to earn an extra $160 per year if they want to secure all four-work credits.
It’s suggested that you visit www.ssa.gov to keep up-to-date with the latest social security rules and speak to your Social Security office and finance advisor to learn more about these changes and how it will impact you going forward.