Social Security could fairly be called the most important social program in the United States. As of August 2017, 61.5 million people were receiving benefits. More than 42 million of these recipients are individuals that are over 62 years old. These folks are fully or partially retired. According to Social Security, over 60% of these recipients count on the income from Social Security for at least half of their income.
What is different in 2018? There’s both good and bad news
Bad News: The full retirement age is slowing rising
When Social Security began in 1935, the full retirement age (FRA) was 65 years. That age was later incrementally raised so that individuals, born in or before 1954, would have an FRA of age 66. The current FRA for individuals who were born in 1956, and turn 62 this year, is 66 years and four months old. FRA is the age that you can receive your full unaffected Social Security retirement benefit. Under current law, the FRA will rise to age 67 over the next four years. Bad news for younger workers is that pending legislation could drive that FRA as high as age 69.
Good News: If you are currently receiving benefits, you received a raise!
Thanks to the rise of inflation in 2017, Social Security recipients will receive a cost of living adjustment (COLA) of 2%. That equates to an average of $27 more a month for the average retired worker. It doesn’t sound like much, but this is the largest increase since 2011.
Now, don’t get too excited — because with Medicare you might not receive this raise at all. If you are enrolled in Medicare, and you have your Part B premiums deducted from you Social Security check, and you’ve been protected by the hold-harmless clause in recent years, you may be subject to an increase in your Medicare Part B premiums. (The hold-harmless clause ensures Part B monthly premiums don’t rise at a faster pace than Social Security’s annual COLA.) But don’t worry too much about understanding this jargon. If you are currently subject to the higher premium, they are already deducting it from your Social Security monthly benefit.
Bad News: High wage earners will owe more in 2018
For many years, workers have been required to pay 6.2% of their income into Social Security, and their employer was required to match that amount. If you are self-employed you get to pay both sides. In 2018 the maximum taxable earnings will rise from $127,200 to $128,700 — an increase of $1500, and $186 in tax. Additional bad news is that the maximum taxable amount is indexed for inflation and will probably go up next year. The good news is that in 2018, after you earn $128,700, you get to stop paying that tax.
Good News: The max monthly payout increased quite a bit
If you have been earning enough to hit the maximum monthly benefit at FRA, you can expect a good increase in 2018. According to the Social Security Administration, the maximum payout at FRA, will increase to $2788 in 2018. To put this in perspective, only one-in-10 American workers can expect to earn more this amount, and even fewer can sustain that level of income over the 35 years that Social Security uses to calculate your payout. Still good news if you are a high wage earner.
Bad News: Thresholds for early retirees will climb again
Social Security is and always has been a “retirement” program. Therefore, if you have not reached FRA and are still earning, a common misconception is there are limits to what you can earn. In actuality, there are no limits to what you can earn — but there are penalties if you earn too much. In 2018 you can now earn up to $17,040 a year, or $1420 a month. (This is a $10 per month increase from 2017.) How does this work? Any amount over $17,040 that you earn in 2018 is subject to a $2-for-$1 penalty. Let’s say you earn $19,040 in 2018. $2000 would be subject to the penalty. You would have to give back $1000 when they catch up to you next year. If you reach FRA in 2018, you can earn up to $44,880 ($3740 a month) up to the month that you reach FRA. Then you could earn an unlimited amount and keep your full Social Security benefit.
So if they withhold your benefits, you get them back later in the form of a higher monthly payout calculated over your life expectancy. But you must wait until FRA for this to begin.
Good News: The Social Security trust fund had over $2.848 trillion at the end of 2016
According to the Social Security Administration this will keep full benefits in place for all recipients though 2034. Hopefully we will see Congress enact changes that will allow our grandchildren to collect retirement benefits from Social Security when they too are old and gray.
Joseph E Roseman Jr. is a Managing Partner in Charlotte NC for O’Dell, Winkfield, Roseman & Shipp, LLC. He holds the CRPC, ChFEBC, NSSA, & CSSCS designations. He has hosted and taught Social Security workshops in cities up and down the east coast. He is a regular contributor to US News and World Report, Time magazine, and other fine publications. He is a regular guest on WBTV Channel 3 in Charlotte, NC on various financial topics. He is not affiliated with or approved by the Social Security Administration or any other federal or state governmental entity.