Social Security Changes in 2017

The Social Security Administration released a few changes to the program making an impact in 2017. These changes include a slight increase in payments, rise in earnings limit, a higher tax cap and more.

Slight Increase in Payments
The beginning of this year brought a slight increase in social security payments by 0.3 percent. This change will result in an approximate $5 per month increase for the average Social Security beneficiary in 2017, where a typical monthly payment for a retired worker will be $1,360 and retired couples will be $2,260.

Rise in Earnings Limit
If a retiree works and collects Social Security simultaneously, some of their benefits may be temporarily withheld if earnings exceed a certain amount. In 2017, the earnings limit for workers under the full retirement age will be $16,920, up from $15,720 in 2016. Beneficiaries earning over this amount will have $1 deducted for every $2 earned above the annual limit.

For workers who reach full retirement age in 2017, the earnings limit is $44,880, an increase of $3,000; and $1 will be withheld for every $3 in excess of the earnings limit. Only the months prior to reaching full retirement age will be counted. Once a taxpayer reaches the full retirement age, however, there is no limit on Social Security earnings.

Higher Tax Cap
This year brings a higher tax cap, increasing the amount of wages subject to the 6.2% Social Security tax. The wage amount will increase more than 7% from $118,500 to $127,200. Any earnings above this amount are not taxed by the Social Security Administration and are not included in the calculation for payouts once full retirement age is reached. Thus, the maximum amount a taxpayer could pay in 2017 is $7,886.40, which is $539.40 higher than the maximum in 2016.

Double Claiming No Longer Allowed
A strategy for dual-earning married couples aged 66 and older is to collect spousal payments worth half of the higher earner’s benefit amount and then later switch to collect payments based on their own work record, ultimately resulting in higher payments due to delayed claiming. This double-claiming strategy, however, is no longer allowed for taxpayers who turned 62 on January 2, 2016 or later. Married couples who are retired now automatically receive the higher of the two benefit amounts. They can no longer choose to claim both payment types at different times.

Suspended Payments Stop Dependent Benefits
Should a taxpayer decide to voluntarily suspend Social Security payments in an effort to earn delayed retirement credits, payments to a spouse or dependents will also stop during the suspension period. This new rule applies to suspension requests on or after April 30, 2016. As an exception to this rule, divorced spouses can continue to receive a divorced spousal benefit should the ex-spouse choose to voluntarily suspend payments.

If you are thinking about or actively planning your retirement, contact your advisor at (805) 963-7811 to help develop the best strategy for you and your situation.