With baby boomers retiring in droves and policymakers wrangling over social support programs like Medicare and Social Security, 2015 was a year full of changes that could dramatically affect any soon-to-be retiree's plans. Here (in no particular order) are my nominations for the top four retirement headlines of 2015.
1. Big Social Security changes incoming
Two major Social Security filing strategies were eliminated by the government this year: restricted applications (also known as file as a spouse first or FAASF) and file and suspend. File and suspend, which phases out May 1, 2016, enabled a worker to file for benefits -- thereby enabling their spouse to file as a spouse first (more on that below) -- and then immediately suspend their benefits to enable a bigger payout at age 70. That allowed families to live off one Social Security check (based on spousal benefits) while enabling one or both spouses to continue growing their worker benefits until the maximum retirement age of 70. After the phaseout date, if someone suspends their benefit, their spouse can no longer receive a spousal benefit based on their work history.
FAASF, enabled a spouse to file to receive their Social Security spousal benefits only, while delaying their worker benefits until the maximum retirement age of 70, thereby achieving a bigger monthly check from then on. And for folks who have been grandfathered in, including those turning 62 during 2015 (although with delays in certain circumstances), that remains the same. But from now on everyone who files for spousal benefits is deemed to have also filed for their worker benefits, entitling them to the greater of the two at the time of filing. But in doing so, they will no longer have the option of growing the worker benefit for a few extra years while receiving spousal benefits.
2. A new way to save
We know Americans aren't saving enough for retirement. That's particularly true for those who don't have access to workplace retirement plans. And in November, the U.S. Treasury delivered on a 2014 promise by President Obama to design a savings vehicle targeted at these particularly needy Americans. The myRA is a no-cost savings account that's very similar to a Roth IRA (money withdrawn from the account is not taxable, for example). MyRA investments earn interest at the same rate as the Government Securities Fund, which is backed by the federal government and therefore has essentially no risk. Of course, the drawback of no risk is low returns -- the GSF has returned an average of 3.19% annually over the last decade. The myRA has a maximum balance of $15,000, so once a worker's balance has reached that cap, it will need to be converted to a private-sector Roth IRA. Read more about the myRA here.
3. No Social Security cost-of-living adjustments in 2016
Seniors have been used to low cost-of-living adjustments (COLAs) for some years now, as low inflation has kept the consumer price index (which COLAs are based on) from rising significantly. But in October the Social Security Administration announced that there would be no COLA at all for 2016, as low gas prices held the CPI to below zero. And so 65 million Social Security recipients, many of whom depend heavily on the program to make ends meet, will see no raise next year.
4. 30% of Medicare participants face a big cost hike
The Centers for Medicare & Medicaid Services (CMS) announced in early November that Medicare Part B premiums will soar by 16% for about three of every 10 Medicare beneficiaries. The rest are protected by a "hold harmless" provision that requires that Medicare premiums not rise by more than Social Security COLAs in any given year. If you are among those facing a rate hike, here's what your 2016 premiums should look like:
|Individual Tax Return Income||Joint Tax Return Income||2015 Total Monthly Premium||2016 Total Monthly Premium||Monthly Premium Increase, 2015-2016|
|No more than $85,000||No more than $170,000||$104.90||$121.80||16%|
|More than $85,000, no more than $107,000||More than $170,000, no more than $214,900||$146.90||$170.50||16%|
|More than $107,000, no more than $160,000||More than $214,000, no more than $320,000||$209.80||$243.60||16%|
|More than $160,000, no more than $214,000||More than $320,000, no more than $428,000||$272.70||$316.70||16%|
|More than $214,000||More than $428,000||$335.70||$389.80||16%|
Others will still pay the $104.90 per month premium for Medicare Part B in 2016. Originally, the bump was supposed to be significantly higher (as high as 52%, according to some estimates), but the budget deal signed at the end of October limited the pain.
But here's the underlying issue
While it's good to see policymakers creating new savings vehicles like the myRA and limiting Medicare increases, there's a great deal more work to be done to beat the overarching problem: America remains in a savings crisis. With the average American woefully underprepared for retirement, our biggest challenge is going to be replacing the 70% to 85% of pre-retirement income most retirement planners think Americans need to retire comfortably.