Social Security is a critical financial safety net for tens of millions of Americans and next year, there will be changes to Social Security that every American ought to know about. Because of inflation adjustments, the amount Americans receive in average benefits will climb. Changes will also impact how much money Social Security recipients can earn before it reduces the size of their Social Security check and the amount of your income that's subject to payroll taxes. Read on to learn about these changes so you can plan for them.
No. 1: You'll get a tiny cost-of-living increase
In 2015, the inflation measure used by the Social Security Administration to determine whether recipients get a cost-of-living adjustment didn't budge, so the amount of money paid out to recipients in Social Security benefits didn't increase in 2016.
This time around, a 0.3% increase in Social Security's inflation calculation means that Social Security income will correspondingly increase by 0.3% in 2017. On average, that increase works out to a monthly benefit of $1,360 next year, up from $1,355 per month this year.
The increase is welcome, however, it may not translate into a bigger monthly Social Security check. Most Medicare Part B enrollees pay their monthly premium directly out of their Social Security income, and monthly Part B premiums are heading higher next year, too.
Part B enrollees who pay a monthly premium of $104.90 this year will pay $109 on average in 2017. The exact Part B premium you'll pay in 2017, however, could be even higher if you're enrolling in Part B for the first time next year or your income subjects you to Medicare premium adjustments. The standard Part B premium paid by new enrollees next year will be $134, which is up from $121.80 in 2016.
No. 2: You can earn more money
Social Security holds back some of your Social Security income if you're younger than full retirement age and your earnings eclipse a set limit. You can earn up to $15,720 in 2016 without Social Security reducing your Social Security income.
In 2017, you'll be able to earn up to $16,920 per year without it triggering a reduction in your Social Security benefit. If your income eclipses that amount, then $1 will be withheld for every $2 earned above that limit. Any money that's held back is added to your future Social Security income at full retirement age, which increases from age 66 to age 66 and two months next year.
Also, if you're reaching your full retirement age in 2017, you can earn up to $44,880 in the months leading up to that point. If you earn more than that, then $1 in benefits will be withheld for every $3 you earn.
No. 3: Uncle Sam will get more
Social Security is a pay-as-you-go system and that means that payroll taxes on worker income today is used to pay current Social Security recipients.
In 2016, Social Security is partially funded by a 12.4% payroll tax -- split equally between employer and employee -- on taxable income up to $118,500.
In 2017, that 12.4% payroll tax will be applied to taxable income up to $127,200.