Please ensure Javascript is enabled for purposes of website accessibility

Social Security in 2015: 5 Things to Prepare For Next Year

By Dan Caplinger – Oct 24, 2014 at 7:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

As 2014 approaches its end, it's time to take stock of the primary source of income for millions of Americans in retirement.

Source: Social Security Administration.

Social Security is the foundation of financial planning for most American retirees, and the majority of those who are retirement age or older rely on Social Security benefits for a substantial portion of their overall income. Yet every year, the Social Security Administration makes some changes to many aspects of the program, and it's important for everyone -- workers and retirees alike -- to understand the changes and the implications they have for your benefits both now and down the road. With that in mind, let's take a look at several changes to Social Security that will take effect in 2015.

1. High-income workers should expect to pay higher Social Security taxes
The 6.2% Social Security tax rate that most workers pay on their earnings hasn't changed in decades. But every year, the amount of earnings subject to Social Security taxes goes up based on increases in average wages nationwide. For 2015, the maximum wage base subject to taxes will rise to $118,500, up from $117,000 in 2014. As a result, the most that any individual employee will pay in Social Security tax will jump to $7,347. Keep in mind, though, that self-employed workers end up paying both the employee and employer portions of the Social Security tax, so they could be on the hook for as much as $14,694.

2. It'll take more income to earn Social Security credits
In order to be eligible for Social Security benefits, you must have earned a certain number of credits over a specified period of time. Retirement benefits, for example, require 40 credits earned over the course of your career.

Source: SSA Office of the Inspector General.

For 2015, it'll take $1,220 in earnings to get one credit, up from $1,200 last year. With a maximum of four credits per year, you only have to earn $4,880 annually to get the most credits possible. Nevertheless, for certain low-income individuals, the credit amount is important.

3. Social Security benefits are on the rise
Each year, retirees and other benefit recipients get a cost-of-living adjustment (COLA) based on inflation over the previous year. For 2015, the Social Security COLA will be 1.7%, which means that if your monthly check in 2014 was $1,000, you'll get a $17 raise come January.

Of course, many retirees aren't happy about such a small increase. But keep in mind that larger COLAs would occur only if inflation levels were higher, and for those who have outside savings, preserving the purchasing power of their nest eggs is much more important than getting bigger Social Security checks.

Source: SSA.

4. You can earn more and still receive full early retirement benefits
If you haven't yet reached full retirement age of 66 and you take Social Security while still working, you'll lose some of your benefits if you earn above a certain amount. For those who won't reach full retirement age during 2015, that threshold will rise from $15,480 to $15,720, above which they'll lose $1 in annual benefits for every $2 extra they earn. For those who will turn 66 next year, a higher limit of $41,880 applies, up from $41,400 last year. Beyond that threshold, working Social Security recipients lose $1 in benefits for every $3 they earn in the months before their 66th birthday.

5. Average and maximum benefits will rise as well
For those who will retire at full retirement age in 2015 and have maximum earnings throughout their career, Social Security payments will amount to $2,663 per month, up from $2,642 for those retiring at full retirement age in 2014. Those amounts are based on the higher average indexed monthly earnings.

In addition, average benefits for various categories will climb in 2015 as well. For all retired workers, the average benefit will be $1,328. For married couples in which both spouses receive benefits, the average monthly benefit will be $2,176 together, while widowed mothers of two children will get an average of $2,680 per month. Disabled workers with a spouse and at least one child will get an average of $1,976 in monthly benefits, while the average benefit among all disabled workers will be $1,165.

Social Security changes can be hard to get used to, but it's important for current and future Social Security recipients to understand the changes and prepare for them. Otherwise, you could be in for an unpleasant surprise come January.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.