If you’re not close to retirement age, it’s easy to ignore what Social Security is doing. However, some significant announcements late last year make now a very good time to pay attention.
What follows is a summary of notable changes to Social Security at the start of 2016 and ways to ensure you’re making the right retirement planning and claiming (http://www.consumerfinance.gov/retirement/before-you-claim/) decisions based on what’s ahead:
- 2016 Social Security payments won’t increase. In late October, Social Security (https://www.ssa.gov/myaccount/) announced that there wasn’t enough inflation in 2015 to create a cost-of-living adjustment (COLA) to monthly benefits this year. Understandably, this announcement shook up recipients who look to Social Security for a significant part of their monthly income. It’s only the third time payments were frozen in the past 40 years since automatic COLA adjustments began, but here’s the rub – all three occasions occurred after 2010. In short, most seniors will have to live with an average monthly payment of $1,341 with married beneficiaries receiving a total of $2,212.
- Married and divorced individuals may have to rethink the way they claim benefits. Also last October, Washington settled a federal budget battle in part by closing some notable loopholes in Social Security law that allowed certain married couples to substantially increase their benefits over time and certain divorced individuals to claim benefits from former spouses under certain circumstances. These new restrictions on so-called file-and-suspend and restricted-claim strategies go into effect this coming May. In short, if you’re close to age 62 (the earliest age you can start claiming Social Security benefits) getting qualified advice has never been more important.
- Other COLA-related issues. When there’s no cost-of-living adjustment, there’s no change in the maximum amount of earnings subject to the Social Security tax, which will stay at $118,500 in 2016. This means earnings above that level aren’t subject to the Social Security portion of the payroll tax or used to calculate retirement payouts. At the same time, the Social Security earnings limit for people who work and claim Social Security payments will stay at $15,720 in 2016 for people ages 65 and younger. Social Security beneficiaries who earn more than this amount will have $1 in benefits temporarily withheld for every $2 in earnings above the limit.
- Some benefits are going down – a little. The highest possible Social Security payment for a 66-year-old worker who signs up for Social Security this year will be $2,639 per month, down $24 from $2,663 in 2015. The reason? Social Security noted that despite no cost-of-living adjustment there was an increase in the national average wage index, one of the statistical guideposts the agency uses to calculate benefits.
- Service changes. If you haven’t created a My Social Security account, do so for two reasons: First, there have been reports of ID theft related to thieves attempting fraudulent signups for such accounts. Second, the agency is making more detailed account data available online such as estimates of monthly payments at various claiming ages. Also, Social Security expanded office hours in some of its field locations in 2015, so if you need face-to-face assistance, check hours of operation at your closest local office (https://secure.ssa.gov/ICON/main.jsp).
Bottom line: Social Security froze benefit amounts for the coming year, and that has an impact on both current and future recipients. You can’t fully understand your retirement without understanding how Social Security works, so now’s the time to learn.
By Nathaniel Sillin