Our retirement investment advisors often field questions about Social Security and how it might impact investment planning. Given that this government program is often a subject of debate, such concerns are easy to understand.
In 2015, Social Security benefits, services and taxes are set to change. Among other changes, recipients should expect larger checks -- thanks to cost of living adjustments or COLA -- and some workers will receive statements that include both estimates of their future benefits and the Social Security taxes they've already paid into the system.
Here are the top five Social Security changes you should expect next year.
1. Maximum Benefit Increases and Strategic Wealth Management
The maximum monthly Social Security payout is scheduled to increase by $21 in 2015, reaching a high of $2,663 per month. This maximum benefit applies to workers who retire in 2014 at full retirement age; the Social Security administration defines this as age 67 for those born in 1960 on. Of course, the amount of benefits you receive is based on two factors:
- The age at which you start claiming benefits
- Your lifetime earnings and work history
2. Investment Planning: Consider Larger Earning Limits
If you're retired, you've signed up to receive Social Security benefits and you're under the age of 66 in 2015, you can earn up to $15,720 per year in income without penalty. If you go over that limit, $1 in Social Security benefits will be withheld for every $2 you earn. If you're turning 66 next year, you can earn up to $41,880 per year; for every $3 you earn after that, one benefit dollar will be withheld.
If you're over age 66 in 2015, you don't have to worry about earning limits.
3. Ask your Retirement Investment Advisor About Higher Tax Caps
On average, workers pay just over 6 percent of each paycheck into Social Security -- at least until their total earnings surpass the tax cap. Currently, that cap is set at $117,000; in 2015, it'll increase to $118,500.
As a result, about 5.9 percent of workers -- or about 10 million people -- will pay higher taxes. Keep in mind that those who earn more than the tax cap don't have to pay Social Security taxes on the excess, and their earnings aren't factored into any future payments into the system.
4. Check Your Mailbox for a Statement
If you were over age 25 between 1999 and 2011, you might remember receiving paper statements from the Social Security Administration each year. The statements were suspended three years ago to save money, but will be reinstated next year.
If you're turning age 25, 30, 35, 40 and so forth in 2015, check the mailbox about three months before your birthday. You will receive a paper statement that details factors including:
- SS taxes paid
- Earning history
- Expected benefit
Those age 60 and older will receive a statement annually. You can go paperless and access an online statement at any time if you enroll for an online account.
5. Bigger Payments and the Financial Planning Process
Finally, expect to receive higher benefits payments in 2015. Thanks to a 1.7 percent COLA, the average recipient will receive $22 more per month. This adjustment means that the average worker's benefit check will increase to $1,328 per month, and the average benefit for a retired couple will increase to $2,176 per month.
Your retirement investment advisor can help answer any questions you may have about these upcoming changes.