Retirement planners may have a tough time in 2014 convincing clients to hold off on claiming Social Security benefits until the last year possible. But for starters, all you’ll have to do is remind clients how little benefits increased in January: a meager 1.5%.
This year’s benefits increase is one of the smallest since 1975, and amounts to an average raise of $19 per month for most seniors. The small increase reflects the fact that consumer prices have not changed much this year, so the federal COLA is following suit, according to The Associated Press.
The typical Social Security recipient collects $1,272 per month, so the 1.5% increase adds $19 to that. The COLA has typically increased by about 4% each year, until the recent recession. There was no COLA in 2010 or 2011; in 2012 the increase was 1.7%.
As small as the 1.5% increase sounds, “at least it is better than nothing,” according to Ann Vanderslice, principal at Ann Vanderslice Retirement Planning Strategies.
Approximately 58 million Americans receive benefits that are impacted by the COLA, according to the Social Security Administration. Also affected are millions of disabled veterans and federal retirees.
Depending on an individual’s overall financial portfolio, of course, it is usually wise to delay Social Security benefits for as long as possible anyway. The recommended strategy is to draw on other assets in the meantime, such as an IRA, pension or 401(k) plan. By delaying the start of Social Security payments an individual receives larger monthly payments once they do collect. In light of this year’s small benefit increase, that strategy may hold more appeal.
Vanderslice hopes so. She said that older workers she initially meets with expect to start collecting Social Security as soon as they reach age 62. Among her first questions: ‘Have you thought of delaying Social Security? Most haven’t even considered it,” Vanderslice said.
New Wage Limit for Social Security Taxes
The other change that retirement planners will be advising clients about is that the amount of wages subject to Social Security tax is going up in 2014.
Currently, Social Security is funded by a 12.4% tax on the first $113,700 in wages that an individual earns. Half of the Social Security tax is paid by the employee, and the other half by their employer. The Social Security Administration announced recently that the wage limit is increasing in 2014 to $117,000. After an individual’s income exceeds that limit, the rest is not taxed for Social Security purposes.
Fortunately for the Social Security Administration’s public relations efforts, a majority of older workers say they are willing to have more of their wages taxed, recent research reveals. It is generally accepted that this is one of the best ways to help ensure Social Security solvency for the next generation.
Retirement planners take note: Although the small benefits increase in 2014 may help your case, you do still have your work cut out for you in convincing clients to delay receiving Social Security benefits.
According to a new study on the attitude of seniors toward Social Security, a majority of seniors today do expect to collect benefits close to the traditional retirement age of 65. Further, they have little appetite for significant changes to the current Social Security system.
That is especially true of any suggestion for increasing the age for full qualification. If an individual decides to delay collecting, that is fine. But seniors say they want that control.