Major Changes to Social Security Are Happening This Year

Q. I am turning 62 this year, and I am trying to figure out Social Security. Should I take it now, or wait until later? Besides figuring out this important detail, I heard that there are some major changes that are happening this year, that could help me make my decision. Can you tell me more about what is expected?

A. Social Security is a federal benefits program the U.S. developed in 1935. While the program encompasses disability income, veterans’ pensions, public housing and even the food stamp program, it is most commonly associated with retirement benefits. Social Security can be complicated for everyone, especially for married couples, divorcees, and widows.

The amount of your Social Security benefit is calculated by averaging the earnings from your 35 highest income-generating years. The maximum monthly Social Security check that you can earn is $2,639 per month in 2016. To sign up for Social Security benefits, it is recommended that you apply three months prior to your retirement date.

When to Collect Social Security Benefits

Nearly six in 10 retirees claim Social Security benefits before they reach full retirement age, according to a recent survey by Franklin Templeton Investments. Only about 16% claim their benefits when they hit full retirement age. (7% of people surveyed delayed their benefits past full retirement age, 4% were eligible for benefits but haven’t taken them yet, and 14% weren’t eligible.)

Here are some things you should know:

• You may choose to retire as early as age 62, but doing so may result in a reduction of as much as 30% of your benefits, according to the Social Security Administration (SSA).
• For early retirees, the SSA reduces a retirement benefit by 5/9 of 1 percent for each month before normal (or full) retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced by 5/12 of 1 percent per month.
• The Social Security Administration also imposes limits on income for early retirees. For instance, if early retirees earned more than $15,720 in 2016, their benefits would be reduced by $1 for every $2 they earn above the limit.
• Each year you wait past full retirement age to claim Social Security benefits up to age 70, you earn an 8 percent delayed retirement credit that will increase your Social Security benefits in addition to cost of living adjustments.

What’s Your Full Retirement Age? 
If you’re born between 1943 and 1954, your full retirement age is 66. Then the full retirement age increases in two-month increments each year for those born between 1955 and 1959. For example, if you were born in 1956, your retirement age is 66 and 4 months. For those born in 1960 and later, the full retirement age is currently 67. (The SSA offers a calculator to help with the math.)

For additional information about how and where to apply for Social Security benefits, go to

Changes in 2017

The nation’s more than 65 million Social Security recipients will get a 0.3 percent cost of living increase in payments in 2017. For the average retired worker, who has a monthly benefit of $1,355, this translates to an increase of just over $4 per month.

Cost of living increases are tied to the consumer price index, and low inflation rates and gas prices means smaller increases. The cost of living change also affects the maximum amount of earnings subject to the Social Security tax, which will increase to $127,200 from $118,500. For highly paid employees, this means that the maximum Social Security tax in 2017 is increasing by about $540. For self-employed individuals, who pay both the employer and employee portion, the maximum Social Security tax bill is increasing by twice that amount.

These are some additional changes:

• Full retirement age is increasing: For seniors reaching the age of Social Security eligibility over the past decade or so, full retirement age (FRA) for Social Security has been 66 years old. In 2017, however, full retirement age will begin to increase for eligible beneficiaries.

Specifically, for people born in 1955 — and therefore turning 62 in 2017 — full retirement age will increase by two months, to 66 years and 2 months. Why is this important? It’s a well-known fact that claiming Social Security before full retirement age results in a permanently reduced benefit. Now, people who claim Social Security as early as possible won’t be four years early — they’ll be four years and two months early, which results in an even bigger reduction.

As an example, let’s say that your Social Security benefit at full retirement age is estimated to be $1,500 per month. If you turned 62 in 2016, you would be entitled to $1,125 per month if you claimed your benefit as soon as possible. On the other hand, if you’ll turn 62 in 2017, your benefit at that age would drop to $1,112.50.

• People who claim Social Security before full retirement age and continue to work are subject to the “earnings test.” If these beneficiaries earn more than a certain threshold, their benefits can be reduced. Fortunately, both thresholds of the earnings test have increased significantly for 2017.Beneficiaries who will reach full retirement age after 2017 can earn up to $16,920 for the year ($1,410 per month) with no benefit reduction. Beyond this amount, $1 in benefits is withheld for every $2 in earnings. Beneficiaries who will reach full retirement age during 2017 can earn up to $44,880 per year ($3,740 per month) with no benefit reduction. Beyond this amount, $1 in benefits will be withheld for every $3 in earnings. This test only applies in the months prior to the month the beneficiary will reach full retirement age. These annual income thresholds are up from $15,720 and $41,880, respectively, so this could make a big difference for working Social Security recipients.

• New retirees could get a higher maximum benefit: The maximum initial Social Security benefit for a worker retiring at full retirement age has increased, thanks to the higher taxable wage limits of recent years.Specifically, the highest possible benefit a new retiree can get if they claim at full retirement age is now $2,687 per month, $48 higher than last year. Keep in mind that to get this amount, the worker would need to have earned more than the Social Security taxable wage limit for 35 years.

Social Security is Complex

As you can see, Social Security rules and strategies are very complex. Before making any decisions, be sure to educate yourself. Below are tools related to Social Security and retirement planning, that can provide more details:

• For lots of additional details about Social Security, including spousal benefits, please visit our Social Security FAQ page.
• Read our articles: Ask the Expert: Can You Explain Social Security, please?,  Can You Retire On Social Security Alone?, and What She Doesn’t Know About Social Security Could Cost Her Thousands.
• Check out AARP’s Social Security Planning guide.

It’s important to consider your options when filing for Social Security benefits. It is also important to keep in mind what could happen if you are living on Social Security alone and you or a loved one becomes incapacitated. You must take this into account when planning for retirement.  Every adult over the age of 18 should have an Incapacity Plan that includes a Financial Power of Attorney, an Advance Medical Directive, and an Advance Care Plan. If you don’t have an Incapacity Plan in place, now is the time to get started.  Please call the Farr Law Firm as soon as possible to make an appointment for a consultation:

Fairfax Retirement Planning: 703-691-1888
Fredericksburg Retirement Planning:: 540-479-1435
Rockville Retirement Planning:: 301-519-8041
DC Retirement Planning:: 202-587-2797

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.