Our Thoughts

Five Social Security Changes to Expect in 2018

Every October, the Social Security Administration (SSA) announces its annual changes to the Social Security program. Here are the changes set to take effect on Jan. 1, 2018, according to the SSA’s annual fact sheet:

1. Social Security beneficiaries will see a 2% increase in payments
For 2018, 66 million Social Security beneficiaries will see a 2% cost-of-living adjustment (COLA). This increase is meant to counteract the effect of inflation. The Bureau of Labor Statistics (BLS) calculates the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), and this calculation ensures that a person’s Social Security check has the same buying power that it did the previous year. If the CPI-W increases more than 0.1% year over year between the third quarter of the previous year and the third quarter of the current year, Social Security will raise beneficiaries’ checks by the same amount.

The 2% bump in 2018 marks the largest COLA increase since 2012, when benefits increased by 3.6%, and is significantly more than 2017’s 0.3% increase. However, for the average Social Security recipient, this 2% raise will amount to just $27 per month, as the average monthly payout increases from $1,377 in 2017 to $1,404 in 2018.

2. Maximum taxable earnings will increase to $128,700
In 2017, employees were required to pay a 6.2% Social Security tax (with their employer matching that payment) on income up to $127,200. Any earnings above that amount were not subject to the tax. In 2018, the tax rate will remain at 6.2%, but the tax cap will increase to $128,700. This change is expected to affect roughly 12 million workers, according to the Social Security Administration.
The flip side of this is that as the taxable maximum increases, so does the maximum amount of earnings used by the SSA to calculate retirement benefits. In 2017, the maximum monthly Social Security benefit for a worker retiring at full retirement age was $2,687. In 2018, the maximum benefit will increase $101 per month to $2,788.

3. Full retirement age will continue to increase
The absolute earliest a person can start claiming Social Security retirement benefits is 62. However, claiming before your full (or normal) retirement age will result in the payout being permanently reduced. For those who turned 62 in 2017, the full retirement age is 66 and two months. But for those who turn 62 in 2018, the full retirement age will increase to 66 and four months. The full retirement age is set to increase by two months each year until it hits 67. So, for anyone born in 1960 or later, the full retirement age will be 67. (You can see your full retirement age here.)

Those who delay collecting Social Security past their full retirement age can actually collect more than their full payout. In fact, someone who put off claiming until age 70 would receive a 76% higher annual payout than a person who started receiving benefits at 62.

4. Earnings limits will increase
Those who work while collecting Social Security benefits usually find all or part of their payouts can be temporarily withheld, depending on how much they earn. However, those income limits will increase slightly in 2018. (See: What happens if I work and get Social Security retirement benefits?)

Prior to reaching the full retirement age, beneficiaries will be able to earn up to $17,040 in 2018. After that, $1 will be deducted from their payment for every $2 that exceeds the limit. The 2018 annual limit marks a $120 increase over 2017’s limit of $16,920. Anyone reaching their full retirement age in 2018 will be able to earn $45,360, up $480 from 2017’s $44,880 annual limit. For every $3 earned over the 2018 limit, Social Security benefits will be reduced by $1, but it will only apply to money earned in the months prior to hitting the full retirement age. Once a person hits the full retirement age, no benefits will be withheld if they continue working.

5. Social Security disability thresholds will increase
About 10 million Americans qualify for Social Security disability payments, and those thresholds are also increasing slightly in 2018. The legally blind will receive a maximum of $1,970 a month, an increase of $20 a month over 2017. For the non-blind, the maximum benefit will increase $10 a month to $1,180.


-Larry Adams, CPFA (Midland, TX)