Social Security beneficiaries will receive 1.5 percent bigger checks in 2014, the Social Security Administration announced today. The program will also be changed in several other important ways beginning in January. Here's how recent tweaks to the Social Security program will impact workers and retirees next year:
Larger payouts. The 1.5 percent cost-of-living adjustment is expected to increase the average Social Security benefit for retired workers by $19 to $1,294. The average benefit for couples who are both receiving benefits will climb by $31 to $2,111 after the cost-of-living adjustment.
The 1.5 percent cost-of-living adjustment is similar to the 1.7 percent increase Social Security beneficiaries received in 2013. Previous cost-of-living adjustments have ranged from zero in 2010 and 2011 to 14.3 percent in 1980. Other years with increases of around 1 percent include 1987 (1.3 percent), 1999 (1.3 percent) and 2003 (1.4 percent). Social Security payments have been automatically adjusted each year to keep up with inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers since 1975.
Higher tax cap. Most workers will pay 6.2 percent of their earnings into the Social Security system until they reach the maximum taxable amount of earnings. The tax cap will increase from $113,700 in 2013 to $117,000 in 2014. Workers who earn above this amount will not pay Social Security taxes on that portion of their income or have that income factored into their retirement benefit. About 6 percent of the 165 million workers who pay Social Security taxes in 2014 will pay higher taxes as a result of this change.
Bigger earnings limits. Retirees who are younger than 66 can earn up to $15,480 in 2014 before part or all of their Social Security benefit will be temporarily withheld, $360 more than in 2013. Social Security recipients who earn more than that amount will have $1 in benefits withheld for every $2 they earn above the limit. Beneficiaries who will turn 66 in 2014 can earn up to $41,400, after which one benefit dollar with be withheld for every $3 earned above the limit. When a retiree reaches the month of his or her 66th birthday, the earnings limit no longer applies and any amount can be earned without penalty.
Maximum possible benefit grows. The maximum possible benefit a retiree can claim at full retirement age in 2014 is $2,642, up from $2,533 in 2013 and $2,513 in 2012.
The announcement of the Social Security cost-of-living adjustment was delayed by two weeks due to the 16-day federal government shutdown that ended on October 16. The Social Security Administration uses the September inflation report produced by the Bureau of Labor Statistics to calculate benefit increases, which was not issued during the shutdown.