Every October Social Security announces changes for the upcoming calendar year. For 2017, here are few significant areas current and future retirees will find noteworthy:
Cost-of-Living Adjustment (COLA): 0.30%
The Social Security COLA is set based on an inflation index known as the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers). The inflation index that should be used to properly account for rising cost of retirees is a perennial topic of debate. Notably, last year the Knoxville News Sentinel did a storyon local U.S. Rep. John J. Duncan’s three unsuccessful attempts in 2011, 2013 and 2015 to get federal lawmakers to assign a more appropriate inflation index for seniors. As it stands, retirees are locked in for a 0.30% increase in 2017. For a retiree with a Social Security benefit of $1,500/month, that means they will only receive an additional $4.50 per month next year.
Maximum Taxable Earnings: $127,200
Social Security is currently designed in a way that once you have earned wages over a certain limit ($118,500 for 2016) you no longer have to pay Social Security tax on those earnings. In 2017, the maximum taxable earnings will increase by 7.34% to $127,200. To put that into perspective, the last time Social Security increased maximum taxable earnings higher (than 7.34%) was in 1983 when it was increased by 10.19%. However, back in 1983 our economy was struggling with significant inflation. Here’s what the annual COLA looks like overlaid on the percent increase of maximum taxable earnings dating back to 1976.
The COLA doesn’t necessarily have a direct relationship to maximum taxable earnings. However, looking back through historical data does show some assemblance of positive correlation. When you look at the upcoming changes for 2017 relative to previous years, it does seem to be a statistical outlier.
Earnings/Quarter for Credit: $1,300
Every year an employee is able to earn up to 4 credits towards their 40 credits needed to qualify for their own Social Security benefit. Last year an employee needed $1,260 of earned wages to earn a credit. In 2017, an employee needs to have $1,300 of earned wages (a $40 increase) to earn a credit. Said another way, if an employee earns $5,200/yr they will receive the maximum 4 credits allowed per year.
Earnings Limit: $16,920 (Age 62 until FRA), $44,880 (Year of FRA)
Once you reach your full retirement age (FRA), you don’t have to worry about the earnings limit anymore. You can earn as much as you want to and your Social Security benefits will not be withheld. You’ll still more than likely have to pay taxes on those benefits, but they won’t be withheld for working too much.
However, there are two windows before your full retirement age that you need to be aware of. If you’re receiving Social Security benefits between the ages of 62 and December 31st of the year before your turn FRA, you can now earn up to $16,920 before Social Security will start withholding $1 for every $2 you earn over that amount. This is an additional $1,200 per year a Social Security beneficiary could receive without affecting their benefit. The second window is between January 1st of the year you turn your FRA and your FRA – you can earn up to $44,880 before Social Security will withhold $1 for every $3 you earn over that amount. In our experience, this second window doesn’t affect quite as many people as harshly as those in the first window.