Why It Matters:
Social Security isn’t static. Many years there are adjustments and changes.
For 2017, there is an increase to how much earnings are subject to Social Security taxes, which could affect high-wage earners.
Social Security adjusts for inflation, but clients may be surprised by how small that adjustment can be.
For 2016, there were some pretty big adjustments to Social Security. This year, the changes were more subtle, but they still bear paying attention.
As financial professionals probably know, last year, Congress finally caught on to strategies married couples were using to boost total household Social Security income, and the ensuing end to “file and suspend” and “restricted application” changed how those couples could plan for retirement income.
For 2017, the more than 65 million seniors receiving Social Security benefits got a cost-of-living adjustment (COLA). For 2016, they did not. But it’s worth talking to clients about 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.
For clients thinking about how great it would 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.”
The bigger change affects 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 a client made $127,200 in both 2016 and 2017, he or she would 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 change in taxable wages affects about 12 million workers.
Another change announced for 2017, which may affect clients claiming Social Security who supplement their income with a part-time job, is an increase the amount recipients under full retirement age may earn without having $1 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).
A fact sheet listing all the new figures is available for download from the Social Security Administration.
Things to consider:
When preparing for retirement income, remind your clients cost-of-living adjustments to Social Security aren’t always going to mean a tangible raise.
You can help your clients see their anticipated Social Security monthly benefit – based on actual earnings history – online at SSA.gov/myaccount. But remind them that the monthly benefit may be taxable.
Talk with your clients about how Social Security income fits into their entire retirement income plan and visit our Field Guide to Social Security page to learn more.