Maximizing Social Security Benefits

By Monte Schatz

Changes in legislation always require an adjustment period and time for understanding.  The Social Security Administration approved legislation in October 2016, effective January 2, 2017.  Their changes affected six major areas: payments, tax cap, earnings limit, maximum benefit, double claims, and suspended payments.

1. Payments. The payments change is a 0.3% increase which although modest amounts to an average of $5 per retired claimant per month. This change also affects the maximum possible benefit for retirees, increasing by $48 per month.
2. Tax Cap. The tax cap increase changes the amount of income, upon which the 6.2% earnings tax applies, from $118,500 to $127,200. This increase results in an average additional $45 of tax withholding monthly if you earn more than $127,200 annually. There are no changes to the withholding amounts if you make less than the previous limit.
3. Earnings Limit. The earnings limit is affected by two major changes.
   • The first is an increase in the allowed amount for those receiving benefits but not yet at full retirement age (65 and younger) from $15,720 to $16,920. The $1200 annual increase allows a worker to earn this additional amount annually, before being subject to decreased monthly social payments.
   • The second earnings limit change reduces the payment withholding to $1 for every $3 earned in excess of $16,920.  Previously, payment withholding was assessed on $1 for every $2 limit of earnings in excess of the full retirement age limit
4. Maximum Earnings. The earnings the reduction of payment withholding will be  particularly beneficial for those who elect to defer receiving benefits at full retirement age (66 years of age and older). Benefits for those who elect to wait until full retirement age increases by $3000 annually to a limit of $44,880.
5. Double Claim. The double claim adjustment seeks to close a previous loophole which allowed individuals to claim spousal payments at an early age and then claim individual payments after reaching full eligibility age. This change removes the ability to elect a different payment option for married retirees and automatically entitles the recipient to the higher of the two at the time they elect to receive.
6. Suspension Procedure. Finally, the changes to the suspension procedure prevents an individual from filing for retirement and then suspending receipt of benefits. This previously allowed a recipient to suspend their benefits until they reached the full benefit age while still collecting allowing their spouse or dependent to benefit at the reduced level. Other than an exception for divorced spouses, if the entitled recipient elects to suspend benefits, all related family entitlement will be suspended for the same period.

With these changes, it is important to understand the impact on individual retirement planning. The most significant long term change is the increase in earnings limit, expected to impact twelve million wage earners.  If your income exceeds the previous limit you are now subject to a tax on more of your earnings, although this tax is nominal it does affect retirement planning.  With a decrease in available net earnings, if earning more than $118,500 a careful review of planned retirement investment amounts is necessary for your own personal portfolio.

The other significant change is the combination of suspension payments and double claim rules.  A best practice to maximize social security benefits for retirement is to wait to claim until full benefit age is reached and not just retirement age.  This practice continues to be the more prudent decision if health and ability restrictions do not limit your capacity for earning.  The new wait and suspend changes, your monthly total benefits will be higher but you will not be able to double dip meaning you cannot have one wage earner and one benefit recipient in the same household.  A careful review of financial status and evaluation of ability to wait and receive both payments at the higher amount instead of both at a reduced amount is a beneficial practice for retirement future.

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