what you’re expecting to get from Social Security and what you’ll actually get in retirement could be two very different realities. So, let’s take a look at how the SSA’s changes for 2017 might impact our benefits…
Yes, it’s true. Beginning in January, the cost-of-living adjustment (COLA) will be a meager 0.3% increase. For the average retiree drawing Social Security benefits, this comes to about $5.00 extra per month – enough to maybe buy a value meal from McDonalds. I mean, you could probably spin this news in a positive light if you really wanted to – after all, there wasn’t any COLA at all for 2016. Either way, 0.3% is nothing to celebrate. The fact is that many retirees feel that the COLA really has some catching up to do. According to a study published earlier this year by Nationwide Retirement Institute, nearly a quarter of the 57 million retirees receiving Social Security checks claim their monthly benefit is less than they had planned for. And that was before news of the 0.3% increase broke.
Married people who turned 62 on January 2, 2016 or later were hit with more less-than-thrilling news. When they go to file for their Social Security benefits, they will now automatically receive the greater of the two benefit options available to married couples – spousal or individual. For married people this takes away one of more popular strategies for maximizing Social Security benefits at full retirement age. I’m talking about the option to claim one benefit now while allowing the other to earn delayed retirement credits.
Back in August, I looked at a question many younger people ask me: “Will Social Security Be Around When I Retire?” I said that it would, and I still believe that. But I mentioned one of the solutions being tossed around to keep Social Security viable is an increase to payroll taxes. And that’s kind of what will happen in 2017. Social Security receives the bulk of its funding from employee payroll taxes with employers matching the amount paid. For most employees, this is 6.2% of the first $118,500 of their earnings. For 2017, however, the earnings cap will increase to $127,200. This will have an impact on millions of working Americans preparing for retirement. Now, these aren’t the only changes coming to Social Security in 2017. There’s a small increase to the maximum monthly benefit allowable, and those who are working while drawing Social Security will enjoy a slightly larger earnings limit before penalties kick in. But those “positives” are about as exciting as the 0.3% COLA.
Well, as I always say, Social Security may not end up providing us as much income as we were hoping for or expecting, but we still want to do what we can to get the largest benefit possible. This is where income planning is critical. For example, I use software that will help us determine the optimal time for how and when you should claim your benefits. Furthermore, you need to make sure that your Social Security strategy fits seamlessly with your overall retirement plan. Every year, too many Americans are shocked to discover their Social Security benefits don’t provide the level of income they had expected. And that is because there are so many factors affecting your benefit. For instance, it’s important to remember that some kinds of pensions could reduce your Social Security benefit by half – or even wipe it out entirely! Railroad workers, for example, pay into the Railroad Retirement plan rather than Social Security. And there are several programs here in California that replace Social Security for some occupations – e.g. CalPERS for most state employees, and CalSTRS for teachers. So, if you’re paying into a pension, it’s important that you check with a retirement income specialist to learn how this might affect your monthly benefit. Another thing to understand is how your other assets are going to be taxed when you begin withdrawals. That income could affect how much of your Social Security benefits are subject to taxation.