Dec 7, 2016 By Gary Boatman for The 3 min read

This week, we will take a further look at Social Security.

This is one of the most important sources of retirement income, yet it is widely misunderstood. First, let’s talk about some changes for 2017. The maximum taxable wage base will increase from $118,500 to $127,200. This is the level that you and your employers stop paying Social Security taxes at during a calendar year.

The amount for the earnings test will increase to $16,920 from the current level of $15,720. The earnings test is applied to anyone who begins to receive Social Security before they reach full retirement age. For anyone born before 1954, it is age 66. For everyone born after 1960, it is 67. There is a phase-in for the six years in between. If you start benefits before your required age, you must give back $1 for every $2 above the earnings test. Once you reach full retirement, there is no earnings test. You can earn any amount without penalty.

The cost of living adjustment for 2017 is 0.3 percent. This means a small increase in benefits. Someone receiving $1,200 per month will get an extra $3.60 per month. If your check was $3,000 per month, you will get an extra $9. You may not actually receive this because we are waiting to see how much Medicare Part B premiums will rise. Some people will temporary be held harmless if they had their Part B deducted from a Social Security check last year. People filing for Medicare in 2017, who have not yet started receiving Social Security benefit, will not be held harmless and will have to pay any increase immediately.

Before 1975, it took an act of Congress to adjust Social Security benefits from inflation. At the time, the only cost-of-living measurement by the Bureau of Labor Statistics was the CPI-W. This index reflects spending patterns of all urban wage earners and clerical workers. The CPI-W represents about 28 percent of the workforce and does not include retirees. Consumer price indexes measure changes in a broad basket of goods and services. Energy costs are a little lower and medical costs are higher. This is painful for retirees because they spend an average of 12 percent of their income compared with younger workers who average about 8 percent for medical expenses.

This is something that we have discussed in the past. If your retirement plan does not reflect healthcare cost, it is not complete. It also shows how important Social Security planning is. Historically, CPI-Ws have been closer to 2 percent a year. Social Security is a benefit that you and your spouse cannot outlive. Over your lifetime, your family could collect hundreds of thousands of dollars from Social Security.

For every year that you begin Social Security before full retirement age, you lose 6.5 percent for the rest of your life. This adds up to tens of thousands of dollars and makes future CPI-Ws smaller. For each year you delay starting Social Security after full retirement age, you increase future benefits 8 percent a year. Remember, maximize SS is just trying to get the largest monthly check; it’s about trying to get the most dollars by filing at the right time and utilizing all of the strategies.

People who were at least 62 by the first of this year still have the ability to file for spousal benefits at FRA and collect while their own benefit continues to grow.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.”