Nearly two-thirds of retired workers rely on their Social Security benefit for at least half of their monthly income. As compared to laws and rules governing other public programs, little has changed with the Social Security program over the last several years. Even today with an estimated $11 trillion budgetary shortfall in the program, few changes are being proposed (President Trump has indicated that he intends to focus more on economic growth to reduce budgetary shortfalls rather than make any significant changes to the program’s infrastructure). However, three changes are likely to occur next year unless modifying legislation occurs before the end of 2017.
- The Full Retirement Age Will Rise Again
In 2017, the full retirement age for new retirees born in 1956 will rise to 66 years and 4 months. This represents a two month increase in the retirement age over last year.
The full retirement age is determined by the retiree’s birth year. It is the age that the Social Security Administration (SSA) deems the retiree eligible to receive 100% of his or her monthly Social Security benefit. While the retiree can claim his or her Social Security benefit at age 62, he or she will receive a reduced lifetime payout. On the other hand, the longer he or she waits to claim his or her benefit after age 66 and 4 months (up until age 70), the larger his or her payout will be.
It should be noted that the law increasing the retirement age is not recent legislativion. This change was actually signed into law in 1983.
- The Largest Increase in Benefits in Years Will Occur
Social Security’s cost-of-living adjustment (COLA) for 2018 is likely to be the largest COLA in years. The Social Security COLA is governed by a portion of the Consumer Price Index (CPI). Readings from the prior year serve as a baseline to compare to the current year. If the CPI falls from one year to the next, there is no COLA (a phenomenon that has occurred a number of times over the past decade). This year, beneficiaries received a modest COLA after a year in which no COLA occurred. Next year, experts predict at least a 2% increase in benefits. This compares favorably to the 0.3% increase beneficiaries received in 2017.
Despite this increase, it should be noted that the COLA is not necessarily a “raise,” but rather a means for the benefit to keep up with inflation. Moreover, when factoring in the significant increase in medical inflation over the past several decades, the COLA does little to keep seniors “ahead of the curve.” For this reason, we recommend that individuals start planning to meet the needs of their future medical care as they approach retirement age. Planning early is key to ensuring financial stability in future years.
- Social Security Taxes Will Increase for the Highest Wage Earners
Payroll tax provides the bulk of the funding for the Social Security program. In 2017, earned income between $0.01 and $127,200 was subject to these payroll taxes. Individuals whose income exceeds $127,200 pay no tax on income earned over this ceiling. Due to better economic standing of the country as a whole, the ceiling threshold is likely to increase.
Although a major overhaul of the Social Security system is unlikely to occur in the near future, minor tweaks are likely in the coming years. As these changes are announced as policy, we will keep clients and firm friends updated. Please review our blog often for issues that affect aged and disabled Hoosiers. If you are approaching retirement, consider scheduling an appointment to start planning for your long term care needs. We are ready to help you navigate your long term care options and provide you and your family the peace of mind you deserve. Contact us today to schedule an appointment.
*The Stinson Law Firm, LLC would like to thank Jon Quick of Q Consulting for providing the information used to prepare this blog post.
Jeff is Certified as an Elder Law Attorney (CELA) by the National Elder Law Foundation, a distinction held by only a handful of lawyers in Indiana. For almost 20 years, he has focused on elder law, estate planning, long-term care planning, Medicaid planning, Veterans Affairs benefits planning, special needs planning, guardianships, and estate administration.