Social Security Is Changing for 2018
Revisit your retirement plan with the latest changes to Social Security benefits.
The Social Security Administration reported last year that over 60 million retirees were receiving Social Security benefits every month. More than half of these will rely on the benefits to make up at least half of their monthly income. Furthermore, according to a Nationwide Institute survey, over 90 percent of people do not understand how to receive a maximum Social Security payout.
There is no guarantee that in the distant future there will even be Social Security benefits, making it more of a priority to have a financial plan that will allow Social Security to supplement other income. In the meantime, changes are made every year that affect those relying on their monthly benefits to make ends meet. Here are some of the important changes announced by the Social Security Administration for 2018:
COLA Increase: Monthly payments are increasing by about 2 percent, from $1,377 to $1,404 or up $46 to $2,340 for the average couple. Although with Medicare deductions, that increase doesn’t turn out to be as much. This is the first decent cost-of-living adjustment that has happened in six years. Reasons for this increase include the increase in fuel prices, inflation and other factors.
Retirement Increase: We have known full retirement age as 66 for quite some time. Full retirement age is now getting to closer to 67. In 2018, full retirement age for new retirees born in 1956 will be 66 years and four months for full benefits. This means that claiming Social Security at any point between age 62 and 66 and four months will mean accepting a reduced payout for a lifetime.
Increased Taxable Earnings Cap: While employees will still pay 6.2 percent tax for Social Security, the income that is subject to that tax is increasing. The earnings cap is increasing from $127,200 to $128,400. Workers must pay into the program until they reach the higher amount, which affects about 20 percent of workers.
Increase in Payout for High Earners: The more that is paid into the system, the more that can be collected. High earners enrolling in Social Security at full retirement age can receive an increase in the maximum benefit of 3.7 percent, or from $2,687 to $2,788. Although only a very small percentage of people are eligible for this maximum payout.
Increase in Disability Threshold: For the over 10 million people receiving disability benefits from the government, the amount that can still be earned per month is increasing slightly. Additionally, the Supplemental Security Income monthly payment standard is increasing from $735 to $750 for individuals and from $1,103 to $1,125 for couples.
Increased Earning Limits for Workers: For those who claim Social Security before full retirement age, there are advantages to continue working. Workers can earn up to $17,040, which is up from $16,920 last year. The earnings limit is $45,360 for those reaching retirement age during 2018.
If you think Social Security is enough to rely on in retirement, think again. In retirement, the average Social Security payout for most is $16,848 per year, which is poverty level. Medicare will not cover all healthcare expenses either. You must have a long-term retirement plan in place. Expect to spend more in retirement, not less. Whether you end up spending on vacations and dining or expect to live modestly, surprise expenses, healthcare and debts will need to be paid in retirement.
Bayntree Wealth Advisors, located in Phoenix and Scottsdale, Arizona, provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.
Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.