Every October, the Social Security Administration (SSA) announces adjustments that are made to the Social Security program for the upcoming year. What effect will these changes for 2018 have on you?
More Money for Beneficiaries – Social Security beneficiaries receive cost-of-living adjustments (COLAs) based on one of the standard measures of inflation – the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This year, the CPI-W rose enough to merit a 2% COLA, the largest increase in six years.
The average retired worker should see a raise of $27 per month – not much, but every little bit helps. However, many retirees will never see that money. If you're a Medicare enrollee with Part B premiums deducted from your Social Security benefits and you have been protected by the Medicare hold harmless clause, your premiums can't rise at a greater rate than the annual COLA (which has been low in recent years). In 2018, the allowable premium increases are likely to increase enough to consume that $27 differential.
Higher Maximum Monthly Payout – Your Social Security benefits are determined by a formula that incorporates your highest inflation-adjusted 35 years of income. However, your maximum monthly benefit in retirement is capped based on proportion to maximum taxable earnings. That maximum monthly benefit is increasing significantly in 2018, rising from $2,687 per month to $2,788 per month.
Higher Cap on Maximum Taxable Earnings – Wealthier taxpayers will pay a bit more into the Social Security fund in 2018, acting as a tradeoff to the higher maximum monthly benefits. Income above a certain level is not subjected to Social Security tax, and that threshold income rises from $127,200 in 2017 to $128,700 in 2018.
Higher Full Retirement Age (FRA) – The FRA is in a transition period from age 66 to age 67. For beneficiaries born between 1943 and 1954, the FRA is age 66. For each birth year after that, the FRA rises by two months until reaching age 67 for beneficiaries born in 1960 or later.
If you were born in 1956, you will turn 62 in 2018 and will become eligible to file for Social Security – but your FRA will occur when you turn age 66 years and 4 months. To receive full benefits, you'll have to wait an extra two months as compared to those who turned 62 in 2017.
Higher Withholding Thresholds for Early Filers – If you filed for Social Security benefits before your FRA, you can only earn a certain amount of income before your benefits are reduced proportionately.
For those who filed in their FRA year but haven't reached their FRA yet, the threshold income increased to $3,780 per month ($45,360 per year). Above that income level, benefits are reduced by $1 for every $3 of income. For those who filed before their FRA year, the income threshold will rise to $1,420 per month ($17,040 per year). Above that income level, benefits are reduced by $1 for every $2 of income.
Don't fret if your benefits are reduced in this fashion – you'll recoup them as a slightly higher monthly payout when you reach your FRA.
Higher Income Thresholds for Disability – While most people equate Social Security benefits with retirement, over 10 million people receive monthly disability-based payments from the SSA. The maximum monthly income threshold – the most income one can earn and still receive disability benefits – is increasing for 2018. Legally blind beneficiaries will be able to earn up to $1,970 per month, while other disability beneficiaries will be able to earn up to $1,180 per month.
Increased Work Credit Threshold – You need 40 work credits over your working lifetime to qualify for Social Security, and you can earn up to four credits each year. Each credit required at least $1,300 in earned income in 2017, but the work credit threshold will increase to $1,320 for 2018.
Will you come out ahead, behind, or about the same with next year's Social Security changes? We hope that you come out ahead – but if not, there's always hope for a positive adjustment next year.
Let the free Retirement Planner by MoneyTips help you calculate when you can retire without jeopardizing your lifestyle.