The Social Security Administration routinely reviews program guidelines to determine if any adjustments need to be made and 2015 is bringing several key changes for workers and retirees alike. While the shifts aren’t anything major, they still have the potential to impact your long-term retirement strategy. If you’re one of the roughly 60 million Americans who receives Social Security benefits or you still have several years to go before you reach retirement age, here’s what you can expect to be different in the new year.
Benefit payments are increasing
Social Security payments adjust automatically each year to keep pace with inflation and this year’s increase is slightly higher than the 1.5% adjustment made in 2014. As of January 1st, payees saw their benefits go up by 1.7%, which comes out to an average of $22 extra each month. The change bumps the average monthly payment up from $1,306 to $1,328. Married couples who both receive benefits got a boost of about $36 on average.
If you’re going to reach full retirement age in 2015, your maximum benefit amount adds up to $2,685.50 per month. That’s a small increase over the $2,642 retirees received in 2014. If you’re planning to delay signing up for Social Security, your benefits should increase by roughly 8% each year until you turn 70.
Earning more means paying more in taxes
The 6.2% Social Security tax rate that most workers pay isn’t changing in 2015 but the maximum amount of earnings the tax applies to is. Last year, the amount of wages subject to base tax rate was capped at $117,000 but this year, it’s gone up to $118,500. That means if you hit the earnings threshold, the most you’ll have to pay for Social Security tax is $7,347. If you’re self-employed, you could end up on the hook for double that amount since you’re responsible for paying in as both employer and employee.
You’ll also have to earn more to get retirement credit
Generally, to qualify for Social Security retirement benefits you have to earn a specific number of credits in the program over the course of your working career. Each credit is earned based on how much money you make and you’re limited to earning four per year. In 2014, workers scored one credit for every $1,200 earned but this year, that number is climbing slightly to $1,220.
Income limits increase for early retirees
If you start drawing Social Security benefits before you reach full retirement age and you’re still working on at least a part-time basis, the amount you’re eligible to receive is reduced based on what you earn. For 2015, individuals who start receiving benefits but won’t turn 66 can earn $15,720 before their payments are affected. If you go above that amount, you’ll lose $1 in annual benefits for every $2 extra you earn. Working retirees who will celebrate their 66th birthday in 2015 can earn $41,880 before their benefits are diminished.
Paper statements are returning
Between 1999 and 2011, the Social Security Administration regularly sent out statements to workers listing their earnings history and an estimate of expected benefits. The program was suspended temporarily but is being reinstated in 2015. If you’re age 25 or older, you can expect to see one of these handy little printouts in the mail this year.
Other retirement changes to be aware of
In addition to Social Security, there are a handful of other changes that savers and retirees need to keep in mind for 2015. If you’re eligible for Medicare Part B, for instance, your monthly premiums and deductibles will stay the same but that’s not the case for other coverage types. If you’re receive inpatient care at a hospital, for instance, your deductible for Part A will now be $1,260 versus the $1,216 it was in 2014. Premiums for Medicare Part D are set to increase an average of 4%.
For those who are still facing the 9 to 5 grind, the amount you’ll be able to save in certain qualified retirement accounts has grown for 2015. If you’re socking away cash in a 401(k), you can defer up to $18,000 of your income this year, plus another $6,000 if you’re aged 50 or older. The total amount you can save, including employer matching contributions jumps by $1,000 to $53,000 altogether.
Limits on IRA contributions are staying at the 2014 limit of $5,500 or $6,500 for savers 50 and over. The maximum income limit to qualify for a deduction on traditional IRA contributions did increase to $71,000 for single filers and $118,000 for married couples filing jointly, a bump of $1,000 and $2,000 respectively over last year’s numbers. The most you could earn before being phased out of contributing to a Roth IRA also went up by $2,000 to $131,000 for individuals and $193,000 if you’re married.
Workers who are at the lower end of the income spectrum may be able to cash in on the retirement saver’s credit if they’re funneling money into an IRA or employer-sponsored plan. The AGI limit for the credit rose to $30,500 for single filers, $45,750 for those who claim head of household status and $61,000 for married couples. The credit is worth up to $1,000 for singles and $2,000 for couples, based on what you earn.
Finally, the new myRA is expected to roll out sometime this year as an alternative way for workers to save for their future. The accounts, which function similar to a Roth IRA, will be available to individuals with an annual income of under $129,000 and married couples who earn less than $191,000.
