It’s so early in 2018 that the Social Security website has yet to update many of its statistics, but there is good news for those collecting Social Security benefits. Because of the Social Security Administration's cost of living adjustment (COLA), the maximum benefit increased slightly this year from $2,687 to $2,788 for those collecting at full retirement age.
This maximum benefit includes all types of non-disability household benefits, including spousal benefits and benefits for divorced spouses. Why the increase? For starters, it’s long overdue. An across-the-board cost of living adjustment (COLA) of this size hasn’t happened since 2012. Retirees received a token 0.03% increase in 2017 and nothing at all in 2016. This year’s bump will have retirees seeing a 2% increase in their monthly payments, which is why the maximum payment amount went up around $100. While it pales in comparison to the increases in healthcare costs and other essential living expenses for some seniors, it’s still a welcome change.
For those who didn’t wait until full retirement age to collect benefits, the increase won’t be as dramatic; their average retirement benefit payment is just $1,404, up from $1,377 last year. The more you made during your 35-year work history—as well as whether you retired before or after reaching full retirement age—determines how easily you can close the gap between your lower benefit payment and that maximum $2,788 payment. That 2% stretches much further on a bigger base benefit payment. (For more from this author, see: Boost Social Security Benefits by Working Longer.)
How the Cost of Living Adjustment Is Calculated
The decision to put the COLA increase at 2% this year is based on the cost of goods. The SSA used the Consumer Price Index (CPI-W) from the third quarter of 2016 through the third quarter of 2017 to determine the increase. If the cost of consumer goods is relatively stable, the COLA will be less significant. In this past year, however, there was a substantial enough increase to warrant this significant COLA increase.
Important Changes for Workers
Besides making benefit payments larger, COLA changes how much of your income is subject to Social Security tax. This new amount will be $128,400, up from $127,200. It also changes how much older Americans can make without losing those Social Security retirement benefits. The earnings limit for those who are still working and below full retirement age (FRA) will be raised to $17,040. FRA is 66 for people who were born between 1943 and 1954. Those who will turn 66 this year will see their earnings limit go from $44,880 a year to $45,360. Once you reach your full retirement age, however, there is no limit on what you can earn.
What History Shows
Even though this is the highest increase in over six years, it’s small in comparison to other automatic adjustments. The Social Security Administration has recorded all COLAs since 1975. While there have been many years with no increase at all, we commonly see increases between 2% and 5%. An especially rough economy during the early 1980s resulted in increases over 11%.
What to Expect in 2019
2018 has barely begun, so it’s too early to speculate what 2019 might hold. The important thing to remember, however, is the hold harmless provision keeps Medicare premiums from rising much in years where there is little to no COLA. So, for this year, any increase you see in your Social Security benefits may be cancelled out by a corresponding increase in Medicare premiums. It’s wise to check in with your financial planner if you’re unsure how this bump in your benefits can be best put to work to keep you living comfortably in 2018.
(For more from this author, see: Protect Your Social Security Benefits From Inflation.)
Disclosure: This information is not intended to be legal or tax advice. The author can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit ssa.gov. PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of these web-sites provided here, you are leaving this site. Our company makes no representation as to the completeness or accuracy of information provided at these sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, sites, information and programs made available through this site. Registered Representative/Securities and Investment Advisory Services offered through Signator Investors, Inc. Member FINRA, SIPC, and Registered Investment Advisor. AspenCross Wealth Management is independent of Signator. 1400 Computer Drive Westborough, MA 01581