If you’re not close toretirement 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 payattention.
What follows is asummary of notable changes to Social Security at the start of 2016 and ways toensure you’re making the right retirement planning and claiming(http://www.consumerfinance.gov/retirement/before-you-claim/) decisions basedon what’s ahead:
2016 Social Securitypayments won’t increase. In late October, Social Security(https://www.ssa.gov/myaccount/) announced that there wasn’t enough inflationin 2015 to create a cost-of-living adjustment (COLA) to monthly benefits thisyear. Understandably, this announcement shook up recipients who look to SocialSecurity for a significant part of their monthly income. It’s only the thirdtime payments were frozen in the past 40 years since automatic COLA adjustmentsbegan, 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 withmarried beneficiaries receiving a total of $2,212.
Married and divorcedindividuals may have to rethink the way they claim benefits. Also last October,Washington settled a federal budget battle in part by closing some notableloopholes in Social Security law that allowed certain married couples tosubstantially increase their benefits over time and certain divorcedindividuals to claim benefits from former spouses under certain circumstances.These new restrictions on so-called file-and-suspend and restricted-claimstrategies 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) gettingqualified advice has never been more important.
Other COLA-relatedissues. When there’s no cost-of-living adjustment, there’s no change in themaximum amount of earnings subject to the Social Security tax, which will stayat $118,500 in 2016. This means earnings above that level aren’t subject to theSocial Security portion of the payroll tax or used to calculate retirementpayouts. At the same time, the Social Security earnings limit for people whowork and claim Social Security payments will stay at $15,720 in 2016 for peopleages 65 and younger. Social Security beneficiaries who earn more than thisamount will have $1 in benefits temporarily withheld for every $2 in earningsabove the limit.
Some benefits are goingdown – a little. The highest possible Social Security payment for a 66-year-oldworker 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 nocost-of-living adjustment there was an increase in the national average wageindex, one of the statistical guideposts the agency uses to calculate benefits.
Service changes. If youhaven’t created a My Social Security account, do so for two reasons: First,there have been reports of ID theft related to thieves attempting fraudulentsignups for such accounts. Second, the agency is making more detailed accountdata available online such as estimates of monthly payments at various claimingages. Also, Social Security expanded office hours in some of its fieldlocations in 2015, so if you need face-to-face assistance, check hours ofoperation at your closest local office (https://secure.ssa.gov/ICON/main.jsp).
Bottom line: SocialSecurity froze benefit amounts for the coming year, and that has an impact onboth current and future recipients. You can’t fully understand your retirementwithout understanding how Social Security works, so now’s the time to learn.
Nathaniel Sillindirects Visa’s financial education programs. To follow Practical Money Skillson Twitter: www.twitter.com/PracticalMoney.