Though the changes to Social Security for 2018 are modest, it’s important to understand how your benefits will be impacted – for better or worse.
2.0% COLA Increase
The big news for 2018 is that 61.5-million Americans receiving Social Security benefits will receive a 2.0 percent Cost Of Living Adjustment (COLA) increase.
This marks the third-largest COLA increase since 2009 with the average retired worker receiving an extra $27 per month.
Automatic annual COLAs began in 1975 to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits was not eroded by inflation.
Higher Medicare Premiums Wipe Out The COLA Increase
Depending on your total income, the increased Social Security benefit will likely be wiped out by higher Medicare Part B premiums in 2018.
Most Medicare beneficiaries will pay $134 per month for Part B resulting in a $25-per-month increase that will eat up the average $27 monthly COLA increase.
Maximum Monthly Benefit Increase For High Earners
About one in 10 Americans have earned enough to max out their Social Security benefits at their full retirement age.
In 2018, the maximum possible monthly benefit for these retirees has increased $101 from $2,687 to $2,788.
That’s a 3.7 percent increase for high earners who enrolled in Social Security at full retirement age of 66.
Maximum Earnings Cap Increase
The amount of workers’ earnings subject to Social Security taxes is capped each year and is known as maximum taxable earnings.
Most workers pay 6.2% of their earnings into Social Security which employers match until their salary exceeds the taxable maximum.
In 2018, the maximum earnings subject to Social Security taxes has been increased from $127,200 to $128,400.
This means workers will contribute 6.2% of their earnings to Social Security until their income exceeds $128,400 in 2018.
Those who earn more than the taxable maximum will not have those earnings taxed by Social Security or used to calculate their retirement benefits.
Earnings Limit Raised
The Social Security Earnings Limit for people age 65 and younger who continue to work and collect Social Security Benefits has been raised from $16,920 per year to $17,040 per year in 2018. Those who earn more than $17,040 in 2018, $1 in benefits will be withheld for every $2 in earned income over the limit.
For those who will be turning age 66 in 2018, the Social Security Earnings Limit increased from $44,880 per year to $45,360 per year. If earnings are more than $45,360 in 2018, $1 in benefits will be withheld for every $3 in earned income over the limit.
Beginning the month a recipient turns the full retirement age of 66 there is no limit on earnings and their benefit will be recalculated to give credit for any withheld earnings.
Social Security Credit Increase (QC)
A Quarter of Coverage (QC), also known as a “Social Security Credit,” is the basic unit for determining if a worker is insured under the Social Security Program.
The amount of earnings required for a quarter of coverage (QC) in 2018 has been raised from $1,300 to $1,320. Keep in mind, no matter how high earnings may be, a worker cannot earn more than 4 QCs in one year.
Full Retirement Age (FRA) Rises For Those Born In 1955 Through 1960
If you were born in 1955 through 1960, you’ll have to wait longer before claiming your full retirement benefit. Your full retirement age has climbed an additional two months to age 66 and 4 months. Keep in mind – as the FRA continues to rise, benefits for those who choose to claim their benefit at age 62 will be decreased further.