Every year, many details of Social Security change. These changes affect both the workers paying in to the system and the retirees collecting benefits. I have put together a brief summary of each of the significant changes in 2017.
The annual COLA to retirees in 2017 is 0.3%. The 0.3% COLA increases the maximum benefit a person can collect at the age of 66 to $2,687 per month.
Workers that retire before their Full Retirement Age (FRA) can make $16,920 in 2017 before their Social Security benefits will be reduced. Benefits are reduced by $1 for every $2 in income over the $16,920 threshold. In the year that an individual turns FRA (normally 66), he can earn up to $44,880 before taking a reduction in his Social Security. For the months leading up to and individual’s FRA, he will lose $1 in benefits for every $3 earned above the $44,880 threshold. Once Full Retirement Age (FRA) is met, there is no reduction in Social Security benefits for earnings.
Anyone turning 62 this year will have a later FRA by two months, which means two things for Social Security recipients. One is that you will have to wait longer to receive your full benefit. The second is that if you begin collecting at age 62, you will receive 74.2% of your benefit at FRA versus what has always been 75% in the past.
Workers paying into the system will see the FICA wage base has been increased from $118,500 in 2016 to $127,200. While retirees are seeing a 0.3% increase in benefits, but people making $127,200 or more will be paying 7.34% more in FICA taxes this year.
FICA taxes also fund Medicare, and Medicare premiums are increasing in 2017 as well. Most current Medicare enrollees will see their premiums increase from $104.90 a month to $109 a month. The big increase will be for new enrollees, who will be paying $134 a month. Higher income earners will pay a higher premium than the $134 based on their income.
We could be seeing a future trend of benefits going up slowly and costs of Social Security and Medicare programs going up much quicker. Full Retirement Age will increase by two months every year until FRA reaches 67 for everyone born in 1960 and later.
Brad Bobb, CFP® is the owner of Bobb Financial Inc, and an expert in retirement planning for federal employees.