The government just gave a raise to a lot of Americans who really need one. Now they just have to make sure Uncle Sam keeps his hands off the money.
The Social Security Administration announced an increase in the taxable maximum earnings and changes in the “earnings test” for 2017. What that means is more money for millions of people between the ages of 62 and 67.
They could get up to $83 a month more in benefits. There’s really no downside to the new rules, but it still pays to know how to get the most out of all the regulations and red tape the Social Security Administration is built on.
That’s especially true for Baby Boomers, as their debt has mounted and the whole concept of “retirement” has changed. In a recent Bankrate survey, 25% of respondents said they plan to work as long as possible because they’ll need the money. The problem is the more they earn from other sources, the less they get from Social Security.
The changes for 2017 magnify the need to adhere to an old rule: The longer you wait to received benefits, the better off you will be.
To which millions say: “If only I could!”
How the Social Security Earnings Test Works
Understood. Nobody is saying it’s easy, but let’s look at the benefits under the new rules.
Full retirement age is 66 or 67, depending on the year you were born. But you are eligible to start receiving Social Security at 62.
The “earnings test” essentially says recipients who still work and haven’t reached full retirement age can have their Social Security payments reduced if they earn more than a certain amount.
If you are taking Social Security benefits now and won’t reach full retirement age after 2017, the exempt amount you can earn for working has gone from $15,720 to $16,920, an increase of 7.6%. But any $2 you earn over that threshold will result in a $1 benefit reduction.
If you are taking Social Security benefits now and do reach full retirement age during 2017, the exempt amount you can earn has gone from $41,880 to $44,880, an increase of 7.2%. There is a $1 benefits reduction for every $3 earned over the new limit, but it applies only in the months before full retirement age is reached.
So if you’re turning 66 in 2017 and earn more than $44,880 a year, an additional $250 a month will be exempt from the earnings test formula. That means you’ll have even more money to spend on food, clothing, tee times, pedicures or obedience lessons for your poodle.
The reality is a lot of senior citizens can’t afford life’s simple pleasures. Almost 25% of workers said they are not confident at all that they’ll have enough money for a comfortable retirement, according to a 2016 study by the Employee Benefit Research Institute.
The National Institute on Retirement Security calculates that two-thirds of households age 55-64 have not saved even a year’s worth of their current income. One-third have no savings at all.
Average Credit Card Debt For Older Americans
The average credit card debt for people over 65 is $6,351. That’s often a budget-buster during prime earning years, so it can be especially troublesome when you’re living on a fixed income.
Some states have set up legal hotline for seniors needing financial help. A lot of them have turned to debt management plans run by nonprofit organizations.
That will help keep debt collectors off your back. And Social Security income is exempt from garnishment unless the debt is owed to the government or for child support.
That’s why it’s advisable to squeeze every dime possible out of those payments, which gets back to the argument for delaying your benefits as long as possible.
Why Wait to Start Collecting Social Security?
The most popular age to start collecting Social Security is 62, with 48% of eligible recipients signing up as soon as the law allows. Only 4% of women and 2% of men wait until 70, according to the Center for Retirement Research.
The hitch is that you get only 75% of your full retirement benefit if you start at 62. If you start collecting at 63, you get 80%, and at 64 it’s 86.7%.
But if you wait until you’re 70, you get 132%. That means if your full retirement was $1,000 a month, you’d get $1,320 if you start collecting at 70 and $750 if you start at 62. Estimate your Social Security benefits with our Social Security calculator.
Either way, the new rules for 2017 will give you a little more financial breathing room. And benefits withheld under the earnings test aren’t permanently forfeited.
Once you hit full retirement age, your monthly payments increase to reflect the amount of money what was “lost” due to excessive earnings. Of course, there’s no guarantee you’ll live long enough to get all the money that was withheld.
For millions of Americans on Social Security, about the only certainty is they’re going to need every dime they can get their hands on. The best way to do that is to not reach for those benefits until they really have to.
Joey Johnston has more than 30 years of experience as a journalist with the Tampa Tribune and St. Petersburg Times. He has won a dozen national writing awards and his work has appeared in the New York Times, Washington Post, Sports Illustrated and People Magazine. He started writing for InCharge Debt Solutions in 2016.
- (NA)(ND). Retirement Planner: Benefits By Year of Birth. Retrieved from https://www.ssa.gov/planners/retire/agereduction.html
- (Laponsie, M.)(2015, Sept. 17). Is My Social Security Safe From Debt Collectors? Retrieved from http://money.usnews.com/money/retirement/articles/2015/09/17/is-my-social-security-safe-from-debt-collectors
- (Cornfield, J.)(ND). Bankrate Survey: 70% will work as long as they can. Retrieved from http://www.bankrate.com/finance/consumer-index/money-pulse-0916.aspx