Like a game of Monopoly, every few rolls you land on Chance or Community Chest. My daughter has learned that while outcomes can be in your favor or not, nobody likes the uncertainty of what is under that card. Last year the government closed the file and suspends strategies that many baby boomers were in line to take advantage of. While many of our clients were grandfathered in and retain their benefits, it changed how we planned social security planning for anyone born after 1954. Let’s take a deep dive into the changes that will most likely affect our clients who live off their portfolio and rely on pensions and social security.
1. I need a raise
You are getting it. Just don’t ask how much. The cost of living adjustment will increase your Social Security payments by a whopping 0.3%. This will cover coffee and desert at your favorite restaurant once a month as long as you love Denny’s.
2. Taxes get a raise too
Every year the payroll tax cap on earned income increases. We all pay 12.4% on earned income, but after $118,500 we all hit the cap. For 2017 that cap just went up to $127,200. If you made $150,000 this year and next year, you will pay more into the system in 2017. For those that earn big dollars over their lifetime, the good news is that the maximum monthly benefit went up a little. A little means $48.
3. Say good buy to 132%
If you wait until age 70 to take your benefits, you get 132% of your personal insurance amount. That use to mean 8% increase for each year you delayed taking benefits after age 66. If you were born in 1954, your full retirement age increases to age 66 and 2 months. Those 2 month increases continue each year until those born in 1960 have a full retirement age of 67. Why is that important? If you were born in 1960 you can only get 124% by delaying to age 70. Why? One less year of getting an 8% roll up.
None of the changes above are anywhere near the bombshell of rescinding file and suspend strategies last year. However, never let your guard down when it comes to collecting benefits that you paid into year in year out for most of your working lifetime. The bottom line is that this is a pension system. They may make some changes and some of them will negatively affect you. It’s important not to throw the baby out with the bathwater, throw up your hands and say “it will never be there so I will just ignore it.” Poor planning is a contributing factor of the majority of Americans ignoring the necessary planning to get their maximum benefits.