4 Financial Surprises Awaiting Seniors in 2017

By Sean Williams Markets Fool.com


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2016 ended on a pretty good note. The stock market has been exploring all-time highs since the election, the U.S. unemployment rate is at a nine-year low of 4.6%, and U.S. GDP growth in the third quarter came in at 3.5%, its most robust growth rate in two years. By all accounts, there's plenty of reason for investors and working Americans to be excited for what 2017 might bring.

However, for seniors, 2017 will bring a number of critical changes. Here are four of the financial surprises that await this year.

1. The full retirement age is rising

One of the biggest changes in store for seniors in 2017 is that the Social Security full retirement age is rising for the first time in more than a decade. A person's full retirement age, or FRA, is the age at which the Social Security Administration (SSA) determines they're eligible to receive 100% of their benefit. If you file for Social Security benefits at any time before hitting your FRA, you'll receive a reduced payout. Wait until after your FRA to enroll for Social Security benefits, and your payout can grow above and beyond your FRA benefit.

Your full retirement age is a unique and fluid number that's determined by your birth year. Beginning in 2017, the full retirement age is slated to increase by two months a year from age 66 to age 67 by 2022. As a result, those who file for Social Security at the earliest possible age of 62 will see a greater reduction in benefits, while those who file at age 70, when benefits max out, will get fewer delayed-retirement credits and thus a smaller boost to their monthly checks.

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2. Social Security beneficiaries are getting a raise

On the other side of the coin, Social Security is also doling out a small raise to Social Security recipients in 2017. As announced in October by the SSA, the cost-of-living adjustment (COLA) in 2017 will be just 0.3%, the lowest increase in the program's history -- although it beats the complete lack of a COLA in 2016. For the average retired worker, who currently collects a monthly payout of $1,354.78, this works out to an increase of $4.06 per month.

Why such a small increase, you wonder? Social Security's COLAs are tied to changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Though the CPI-W factors in numerous cost categories, year-over-year weakness in fuel and food prices have primarily pushed the CPI-W down over the past two years, limiting seniors to little or no "raise."

3. But seniors are giving some or all of that back via Medicare premium hikes

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However, most seniors will probably give their minuscule Social Security "raise" back in the form of higher Medicare premiums. If there is a silver lining here, it's that about 70% of Medicare members are protected by the "hold harmless" clause. This clause ensures that their Medicare premiums don't increase at a faster rate than their Social Security COLAs. Thus Medicare premiums for a majority of seniors will rise by just 0.3% in 2017.

The remaining 30% aren't so lucky. Newly eligible Medicare enrollees in 2017, seniors over the age of 65 who aren't receiving Social Security benefits, and seniors who are directly billed for their Part B (outpatient services) premiums are expected to pay a base Part B premium of $134 per month, up from $121.80 per month in 2016.

4. A temporary tax exemption has disappeared

Another key financial difference for seniors is that is that a four-year medical expense deduction exemption is disappearing.

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Between Jan. 1, 2013 and Dec. 31, 2016, individuals aged 65 and up, as well as their spouses, were allowed to deduct unreimbursed medical expenses that exceeded 7.5% of their adjusted gross income (AGI). Meanwhile, persons under the age of 65 were only allowed to take medical expense deductions on medical expenses totaling more than 10% of their AGI. Beginning in 2017, seniors can kiss their special exemption goodbye; they'll be subject to the same medical care deduction threshold as all taxpayers.

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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.

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