October 23, 2017
Change is a constant in today’s world. One of the biggest insurance policies of modern times, social security, is no stranger to change. A recent article from USA TODAY outlines what aspects of this social program are being modified for 2018.
Based on recent numbers from the USA TODAY article, 61.5 million people receive benefits and more than 42 million (or 62%) of them are retirees.
Bottom line, any changes to social security affects a large number of Americans.
Here is a quick outline of the changes reported by USA TODAY:
- Cost of Living Adjustment of 2% - This works out to approx. $27 more per month for the average retiree (based on a calculation done by the Bureau of Labor Statistics).
- Increase in payout - If you waited to take your benefit until your full retirement age you will receive an increase of $101-$2,788 more a month. This increase is for retirees who were able to earn more than the maximum taxable earnings cap (the point at which payroll taxes on social security cease) every year for at least 35 years. This applies to only about 1 in 10 Americans, however still a strong benefit.
- Maximum Taxable Earnings Cap will Increase to $128,700 - In 2017 workers were required to pay a 12.4% payroll tax into Social Security on earned income between $0.01-$127,200. For 2018 the max income is $128,700 or a $1,500 increase. Unless you are self-employed, your employer is required to pay half of 12.4% owed, so most Americans pay approx. 6.2% of their income between $0.01 and $128,700. Folks who earn more than the $128,700 can expect to owe an extra $93 in tax, at minimum, next year.
- Your Full Retirement Age is Rising - Retirees who were born in 1956 will have to wait until they are 66 years and 4 months old in order to receive 100% of their benefit. This is two months longer than those born in 1955. Here is the benefit table from the Social Security website for your reference.
- Higher Withholding if you are still working and receiving your benefit - Most people don’t realize that if you are still working and not at full retirement age but are receiving a social security benefit, the administration can withhold part of all of your benefits based on your earned income. In 2017 if you had income over $16,920, $1of your benefit would be withheld for every $2 in earned income above $16,920. For 2018 the threshold is $17,040 annually.
- Disability Income Threshold Increase - If you are one of the 10 million Americans who are eligible to receive social security disability benefits, and you are not blind, you can earn $10 more up to $1,180/monthly income. If you are blind, you can earn $20 more up to $1,970/monthly income.
- Qualifying for Social Security Got Harder - Social Security is not an automatic benefit. You must be a U.S. citizen and you must have earned 40 lifetime work credits (max of 4/year). In 2017 you were able to earn a lifetime work credit for every $1,300 ($5,200 in earned income would max out your coverage credits for the year) in earned income. For 2018 you must earn $1,320 ($5,280 need to max annual coverage credits) in earned income for one credit.
You do not need to memorize these changes. Rather, I strongly recommend working with a professional to review how these changes may or may not affect your financial/retirement plans.