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Changed for the New Year? Social Security Update for 2014
It has been my custom for most of the past 16 years to write a year-end column
that summarizes the Social Security changes and updates scheduled to take place
the following year.
Almost all Social Security beneficiaries are familiar with the most popular and
publicized upcoming change: The increase in monthly benefit checks for 2014 due
to the automated cost-of-living adjustment. In fact, Social Security recipients
have probably already received a notice from the Social Security Administration
telling them of the expected increase.
All Social Security checks are going up 1.5 percent in 2014. The COLA is based
on something called the Consumer Price Index for Urban Wage Earners and Clerical
Workers. This is the official measuring stick SSA has used to determine COLAs
for the past 40 years. If you want to learn more about this measure, check out
the website of the folks who maintain it: the Bureau of Labor Statistics. You’ll
find them at www.bls.gov.
I always dread mentioning COLAs in this column because every single time I do,
I am flooded with emails from readers complaining that the increase is not enough.
(Curiously, not once in 16 years has anyone ever written to me to say that their
COLA increase was too high!)
Yet here’s the rub: Many economists and social planners believe Social
Security COLAs are too generous. (I’ve explained why in past columns, but
don’t have the space to get into that argument today.) That’s why
most discussions of long-range reforms for Social Security include proposals
to reduce cost of living increases.
Due to these increases, the average monthly retirement check will be $1,294 in
2014, a $19 increase from the 2013 level. The maximum Social Security check for
a worker retiring at age 66 next year will be $2,642, compared to $2,533 in 2013.
And please note that is the maximum for someone turning 66 next year. That does
not mean it is the maximum Social Security payment anyone can receive. There
are millions of Social Security beneficiaries who get much more than that, primarily
because they work well past age 66.
Another measuring stick called the national wage index is used to set increases
to other provisions of the law that impact Social Security beneficiaries and
taxpayers. Specifically, this includes increases in the amount of wages or self-employment
income subject to Social Security tax, the amount of income needed to earn a
quarter of coverage and the Social Security earnings penalty limits.
The Social Security taxable earnings base will go up from $113,700 this year
to $117,000 in 2014. In other words, people who earn more than $117,000 next
year will no longer have Social Security payroll taxes deducted from their paychecks
once they hit that threshold. This has always been a very controversial provision
of the law. (Donald Trump pays the same amount of Social Security tax as his
plumber!) I will bet a year’s worth of my pension checks that any eventual
Social Security reform package will include a big increase in that wage base.
I don’t think it will be eliminated. But it will increase rather sharply.
Most people need 40 Social Security work credits (sometimes called quarters of
coverage) to be eligible for monthly benefit checks from the system. In 2013,
people who were working earned one credit for each $1,160 in Social Security
taxable income. But no one earns more than four credits per year. In other words,
once you made $4,640, your Social Security record has been credited with the
maximum four credits or quarters of coverage. Next year, the one credit limit
goes up to $1,200, meaning you will have to earn $4,800 in 2014 before you get
the maximum four credits assigned to your Social Security account.
People under age 66 who get Social Security retirement or survivor’s benefits
but who are still working are subject to limits in the amount of money they can
earn and still receive all their Social Security checks. That limit was $15,120
this year and will be $15,480 in 2014. For every two dollars a person earns over
those limits, one dollar is withheld from his or her monthly benefits.
There is a higher earnings threshold in the year a person turns 66 that applies
from the beginning of the year until the month the person turns 66. (The income
penalty goes away once a person reaches that full retirement age.) That threshold
goes up from $40,080 in 2013 to $41,400 next year.
A couple other Social Security provisions are also impacted by inflationary increases.
For example, people getting disability benefits who try to work can generally
continue getting those benefits as long as they are not working at a substantial
level. In 2013, the law defined substantial work as any job paying $1,040 or
more per month. Next year, that substantial earnings level increases to $1,070
Finally, the Supplemental Security Income basic federal payment level for one
person goes up from $710 this year to $721 in 2014. SSI is a federal welfare
program administered by SSA, but it is NOT a Social Security benefit.
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