What’s going to happen to my Social Security? That question is likely on the mind of many currently and soon-to-be retired Americans in the wake of Donald Trump’s stunning election victory. During the campaign, the maverick candidate promised to “protect Social Security, Medicare and Medicaid, without cuts.” Now that he’s on his way to the Oval Office, some are wondering whether he’ll change his tune.
Michael Korbey, an ex-lobbyist who’s heading up the Trump transition team’s Social Security effort, has been vocal about his desire to privatize the popular program, the AP reported. Meanwhile, House Speaker Paul Ryan has his eye on privatizing Medicare, and there’s speculation he might propose something similar for Social Security. (Officially, Ryan wants to “preserve” Social Security, though he says the program is “not sustainable” in its current form. He has supported privatization in the past.)
All that’s enough to cause a few sleepless nights for America’s seniors, but it’s probably too soon to panic. Despite its financial challenges, Social Security is an enormously popular program. Any effort to dramatically change it – say, by having people invest their Social Security savings in private accounts – is likely to face a steep uphill battle, even in a GOP-controlled Congress.
That doesn’t mean some Social Security changes aren’t looming in the future. A variety of ideas have been floated to address projected shortfalls, including raising the amount of income subject to Social Security tax, increasing the tax itself, and increasing the retirement age. Those are changes both Democrat and Republican voters can agree on, at least according to a recent survey. Whether the government will be able to enact any of those suggested reforms is another question.
In the meantime, the Social Security Administration continues to make incremental adjustments to the program every year, including tweaking the amount of income subject to Social Security tax and adjusting benefits for inflation. Amidst all the uncertainty, let’s take a closer look at five Social Security changes we know for certain, including some people paying more in Social Security taxes.
1. Recipients will get a little more money – in theory
Social Security recipients will get a 0.3% cost-of-living adjustment (COLA) in 2017 to help their benefits keep pace with inflation. That works out to about $5 more per month for the typical retired worker. The average benefit check will increase to $1,360 per month from $1,355. Still, even this modest bump is better than last year, when retirees didn’t get any cost-of-living increase. The highest-ever COLA came in 1980, when checks increased by 14.3% due to double-digit U.S. inflation rates.
In reality, most retirees won’t see any change in the amount of money they receive from Social Security every month. That’s because any increase in benefits will be offset by a slight increase in Medicare Part B premiums, which are automatically deducted from Social Security payments.
The max you can receive is also increasing…
2. The maximum benefit amount is increasing
Social Security caps monthly benefits for retirees at a certain level. Last year, the most a worker at full retirement age could receive was $2,639 per month. In 2017, the cap will increase to $2,687 per month. Whether you’ll receive that much depends on your lifetime earnings.
The slight increase in maximum benefits makes up somewhat for a hit high earners took in 2016. That year, the maximum benefit amount actually fell from $2,663 per month to $2,639 because there was no COLA but there was an increase in the national average wage index.
3. The earnings limit is going up
Social Security checks don’t always provide enough to live on. Fortunately, there’s no rule forbidding you from working and receiving benefits at the same time. However, Social Security does limit the amount people who retire before their full retirement age (66 for most workers) can earn while still receiving benefits. In 2017, the earnings limit will be $16,920, up from $15,720 in 2016.
What happens if you exceed the earnings limit? Social Security will withhold $1 in benefits for every $2 over the limit you earn. The money isn’t gone forever, though. Once you hit age 66 the earnings limit is lifted and you’ll receive credit for any benefits that were withheld in the past.
Next, let’s see who will pay more in Social Security taxes…
4. Some people will pay more in Social Security taxes
In 2016, most workers will pay 6.2% in Social Security tax on the first $118,500 they earned. Next year, you’ll have to pay taxes on the first $127,200 of income. The $8,700 jump is the biggest ever in Social Security history. It works out to a tax increase of $539.40 for anyone whose income hits or exceeds the cap.
The increase isn’t totally unexpected. Changes in the wage base are tied by law to national wage growth, but the wage base doesn’t increase if there’s no COLA in a given year. Since there was no COLA in 2016, the 2017 wage base adjustment reflects two years of wage growth, the Motley Fool explained.
5. A few sneaky claiming strategies are history
Until a few months ago, savvy retirees could take advantage of a couple of strategies that allowed them to boost their benefits in certain situations. One of the most popular was known as “file and suspend.” It involved one spouse filing for benefits at age full retirement age but then immediately suspending their benefits. Then, their husband or wife would claim their spousal benefit. Meanwhile, each person’s individual benefit would continue to grow until age 70 because of delayed retirement credits. When implemented correctly, the strategy allowed retirees to pocket as much as $50,000 in extra benefits.
Well, the government closed the loophole and eliminated file-and-suspend for everyone born after April 30, 1950. Restricted applications, a similar technique used to squeeze a little more out of Social Security, are gone as well, unless you were born before January 1, 1954. Both strategies tended to be used by well-off couples who could afford to delay benefits while relying on other sources of income.
“While the loss of these claiming options could lead to less lucrative Social Security benefits for those that could have taken advantage, it may also represent the beginning of strategies designed to improve the long-term solvency of Social Security,” Kurt Rossi, a certified financial planner, wrote in an article for the Times of Trenton.