For the most part, Social Security is a straightforward concept. You pay taxes to the program throughout your working life, and then, upon reaching retirement age, you collect monthly benefits based in large part on the amount you paid into the system over that career.
Still, there are small shifts to the program every year, and 2015 will be no different. Let's go over three developments to watch for in 2015 if you're one of the millions of Americans either paying into or receiving money from Social Security.
Payment amounts and income subject to taxes are rising
In January, Social Security payments will increase 1.7% thanks to the annual cost-of-living increase, and the income limit subject to Social Security taxes increases to $118,500 from $117,500. The average monthly payment to a retiree will be $1,328, up from $1,306 prior to the adjustment.
The maximum possible Social Security benefit to a new retiree just reaching full retirement age in 2015 will also increase to $2,663 per month from $2,642 per month in 2014.
If the payments and increases seem woefully inadequate to cover your lifestyle in retirement, you're not alone. Social Security was never designed to be your only source of income in retirement -- just a foundation to be supplemented with pensions and/or personal savings.
Mailed personal statements are making a comeback (for some people)
Until 2011, Social Security mailed out annual statements telling people who weren't collecting payments what their eventual benefits would be. Budget cuts curtailed that practice, but it's making a partial comeback. If you are turning 25, 30, 35, 40, 45, 50, 55, or 60 in 2015, and you haven't signed up for an online Social Security account, then you can expect to receive a statement this year.
The statement provides an excellent estimate of your benefit and a copy of your earnings record. If you don't want to wait until your multiple-of-five birthday to see your statement, you can sign up online at this link.
The financial health of the program will be evaluated around April 1
Every year, the Social Security Trustees publish a report detailing the program's stability and financial health. The report is due by April 1, but it doesn't always get published on time. The 2014 report, for instance, was published on July 28.
Key in that report will be an update on the estimated timeline of when the Social Security Trust Funds will empty. In the last report, the trustees estimated that the funds would empty by 2033 and that payments would be cut by about 23%. History suggests Congress will likely pass some combination of tax hikes and benefit cuts to shore up the system between now and then.
Unless and until that happens, though, your best bet is to invest as if you will have to make up for that cut on your own. After all, if taxes rise to cover the gap, it's easier to dial back your investing to cover the reduction in your take-home pay than to cut your basic costs of living. On the flip side, if benefits are cut, you'll be glad you have a buffer built up.
It's your retirement. Take control
Despite the long-term challenges facing Social Security, it remains a key part of millions of Americans' retirement plans. It appears there will only be modest adjustments to Social Security in 2015, which provides an excellent opportunity to update your end-to-end retirement plans around what you'll need to retire comfortably. Take advantage of the relative calm to take control of your retirement. Your future self will thank you for it.