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Keeping Up With Social Security

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You may not be paying attention to Social Security benefits. After all, what difference do they make if you’re not cashing a Social Security check yet?

 

But keeping track of the changes (oh, there are almost always changes) from year to year can be a good reminder that you probably can’t count on Social Security to be your sole source of retirement income. And besides, one change that happened to the program will affect millions of American workers who aren’t collecting benefits.

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What’s new?

For 2017, the more than 65 million seniors receiving Social Security benefits got a cost-of-living adjustment (COLA). But it’s worth noting how small that adjustment is, just 0.3%. That’s less than $5 a month for the retired beneficiary receiving the monthly average benefit of about $1,360.

 

If you’ve been thinking about how great it will be to have retirement income that automatically adjusts for inflation, this should serve as a reminder that the adjustment might not always be significant. And the announcement came with a warning about anticipated adjustments to Medicare Part B health insurance premiums, “for some beneficiaries, their Social Security increase may be partially or completely offset by increases in Medicare premiums.” So maybe forget about that five bucks a month.

On the other hand, there was no adjustment for 2016. Not a dime.

 

Bigger change

The bigger change affects current high-wage earners. Social Security increased the maximum taxable amount of wages by 7%, from $118,500 a year in 2016 to $127,200 for 2017. So if you made $127,200 in both 2016 and 2017, you’d pay (at the Social Security tax rate of 6.2% for employees) $7,886.40 this year. That’s about $539 more than last year.

 

The difference between the 7% increase in taxable wages and the measly 0.3% increase in benefits is because the government uses two different indexes to calculate adjustments. For the COLA, Social Security ties adjustments to increases in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics. For taxable limits, the agency uses the national average wage index.

 

The change in taxable wages affects about 12 million workers. (Fun fact: Until 1950, only the first $3,000 of wages was taxed for Social Security).

 

Working while collecting

Another change announced for 2017, which may affect recipients who have chosen to supplement their income with a part-time job, is an increase in the amount recipients (under full retirement age) may earn without having a dollar in benefits withheld for every $2 earned. The current earnings limit is $15,720 per year, and that will rise to $16,920. (The amount is $44,880 for those in the year of their full retirement age).

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A fact sheet listing all the new figures is available for download from the Social Security Administration.

 

Are you getting close to receiving benefits, or have you already started collecting? How do annual changes affect how you make financial decisions from year to year?

 

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This material was prepared for general distribution.  It is being provided for informational purposes only and should not be viewed as an investment recommendation.  If you need advice regarding your particular investment needs, contact a financial professional.

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