An estimated 221,000 Mainers 65 and older collect monthly Social Security retirement benefits. The number is expected to rise steadily over the next 15 years as members of the baby boom generation reach retirement age and start collecting their benefits. The average benefit is about $1,160 per month, and for one in three Maine retirees it is the only reliable source of income.
Established in 1935 as an element of the Depression-era New Deal legislation enacted by President Franklin Roosevelt, Social Security pumps about $4.6 billion per year into the Maine economy. The program enjoys broad consumer popularity and bipartisan political support, according to Lori Parham, executive director of the Maine chapter of the senior advocacy group AARP.
“Especially in a state like Maine that is older, that is poor, Social Security is a critically important program,” she said. The traditional private pension system of retirement has all but disappeared, she noted, and the struggling economy means many Maine workers live from paycheck to paycheck with little ability to save and invest for their retirement years. A recent report from the University of Maine shows that, statewide, retirement savings are on the decline while seniors’ dependency on public assistance is growing.
So while Social Security is stable and adequately funded, Parham said, it’s important that beneficiaries here understand how it changes from year to year as well as the forces that shape its future.
Changes in 2017
Social Security changes a little each year in response to economic conditions, scheduled adjustments, regulatory requirements and lawmaking. This year, for example according to the online investment and financial planning site The Motley Fool, a handful of changes took effect in January that already are impacting the workers and employers who fund the program as well as the retirees who rely on it.
For 2017, a small cost of living adjustment amounts to about $4 more per month for the average beneficiary — but this will likely be offset by an increase in the cost of Medicare premiums. For people turning 62 this year, full retirement age increases from 66 years to 66 years and two months, which worsens the already significant monthly benefit reduction for those who file early. “Now, people who claim Social Security as early as possible won’t be four years early — they’ll be four years and two months early, which results in an even bigger reduction,” The Motley Fool explains.
Also, the amount you can earn by continuing to work while collecting Social Security benefits has increased this year, whether you have reached full retirement age or not. Beneficiaries who will not reach full retirement age in 2017 may earn up to $16,920 without penalty, up from $15,720. Those who will reach full retirement age this year may earn $44,880, up from $41,880. After reaching full retirement, age there is no limit on what can be earned.
For people filing for first-time benefits this year at full retirement age, the maximum monthly benefit — based on your earnings over time — increased $48, from $2,639 to $2,687 per month. And, for current wage earners and their employers, the amount of annual income subject to the 6.2 percent Social Security tax has jumped from $118,500 to $127,200.
The bigger picture
The federal Social Security program was established in 1935, after multiple bank failures and a devastating crash of the stock market wiped out the jobs, savings and retirement plans of millions of Americans. As an element of the Depression-era New Deal legislation signed into law by President Franklin Delano Roosevelt, the tax-funded Social Security guaranteed a basic income for unemployed Americans and retirees, a safety net to prevent them from living in abject poverty.
These days, more than 80 years later, Social Security remains a cornerstone of most Americans’ retirement plans, although it was never intended to be the sole source of income and few are able to live comfortably on its monthly payments without additional resources. As the generation born between 1946 and 1964 enters retirement age, Social Security benefits are secure. With an interest-earning fund of about $2.8 trillion, analysts say the program is in good shape at current benefit levels through 2034.
That’s the year when projections estimate the program will no longer be able to meet more than about 75 percent of its obligations, even as the number of new enrollees declines with the continued advance of the boomer generation. That’s in part because the smaller workforce following the boomers will contribute fewer tax dollars to the system while the cost of living is expected to rise. And the swell of elderly boomers will linger well into the 2040s.
“Everyone [in Washington, D.C.] knows we need to do something to deal with the fact that Social Security is going to run into trouble in 2034, and the sooner we do it the less painful it will be,” said Elizabeth Johns of Orono, who, at 73, recently completed a doctorate degree from the University of Massachusetts in the economic security of older adults. But, she added, opinions vary widely about the best approach.
“It’s going to be a major battle,” she said. Johns said several proposals targeting the long-term future of Social Security will be considered by Congress in the coming months. From privatizing the program through incentives for individual retirement investing, to curtailing benefits or increasing tax funding, she said, the issue has been a hot debate for decades.
The idea of privatization, popular with many Republicans, gained some traction during the administration of President George W. Bush but quickly disappeared during the economic recession that started in 2008.
“It probably will come up again,” Johns said, “though people are still embarrassed about 2008.”
A Republican bill awaiting hearing includes changing the official full retirement age to 69 over time, up from the current 66 or 67 depending on when you were born; decreasing spouse and dependent benefit levels for high-income earners; eliminating income tax on benefits for those with lower monthly payments; and adopting an alternate method for determining cost of living adjustments, which would reduce the periodic COLA adjustment.
A Democrat-sponsored bill, meanwhile, would raise the minimum benefit for individuals with 30 years or more in the workforce, increase the amount that individuals and employers pay into the system and raise the taxable wage level for funding the program from the current $127,200 to $400,000.
“These are likely to be the two dueling pieces of legislation when Congress turns its attention to the issue of reforming Social Security,” Johns said.
At AARP Maine, Parham said the nonpartisan organization has not taken a position on any specific proposals, although it is opposed on broad principle to privatization given fluctuations in the stock market and individuals’ differing abilities to understand the principles of investing. While agreeing that steps must be taken to ensure the program’s sustainability and its success, the organization is researching alternatives to find acceptable middle ground.
“We feel strongly that there should be a bipartisan approach to changing Social Security and ensuring its viability for the future,” Parham said. For example, she said, “if you scrap the cap on taxable income, you would pretty much solve the problem.” But that approach is unlikely to garner support from Republicans, while a move to sharply curtail benefits would be a non-starter for most Democrats. “We’re reaching out to members of Congress and working to educate our members,” she said.
And she agrees with Johns’ assessment that lawmakers will be turning their attention to Social Security sooner rather than later, when they’re ready to move away from repealing, replacing or reforming the Affordable Care Act, revising the tax code and other issues they’re currently grappling with.
“The sky is not falling,” Parham said, “but we do need leadership on both sides of the aisle to ensure the longterm viability of this program.”
Correction: This story has been changed to clarify that there is no earnings limit after reaching full retirement age.