There are some significant changes to the Social Security program this year which you should be aware of, particularly if you are thinking of retiring soon or already have. One of the most important components of an individual’s retirement plan is the opportunity to receive monthly income from the Social Security program. Over 65 million people received benefits from programs administered by the Social Security Administration (SSA) in 2015. Furthermore, 61 percent of beneficiaries received at least half of their income from Social Security in 2014. Even if you are not currently receiving benefits from this program, the changes made may impact your financial planning this year.
Arguably the most significant news is that benefits for more than 65 million Social Security beneficiaries are going up by 0.3 percent this year, or about $5 a month per SSA estimates. This 0.3 percent represents the cost-of-living adjustment (COLA) which aims to amend the benefit amount in accordance with the inflation of the economy. However, most retired workers will not see an increase thanks to rising Medicare premiums. The 70% of beneficiaries who pay their Part B premiums directly from their Social Security benefits will see their monthly premiums rise by roughly $4, almost completely offsetting many beneficiaries’ COLA.
Another substantial change to Social Security this year is a tax hike for high earners. The social security tax rate of 6.2 percent for employers and employees remains the same for 2017. However, the maximum amount of earnings subject to Social Security tax has risen significantly from $118,500 to $127,200. For highly paid employees, this means that the maximum Social Security tax is increasing by about $540. For self-employed individuals, who pay both the employer and employee portion, the maximum Social Security tax bill is increasing by twice that amount. Of the estimated 173 million workers who will pay Social Security taxes this year, about 12 million will pay more because of the increase in the taxable maximum.
Regardless of how all of these changes may impact you, it is always important to be prudent in planning your financial future.