In 2018, there will be some slight changes to Social Security. For individuals receiving benefits, there will be a cost of living (COLA) increase of 2 percent. While 2 percent may not seem like a lot, it certainly does help. Additionally, it’s better than nothing. That is, Social Security remains one of the few retirement vehicles available with a COLA. Many defined benefit pensions (if an individual is lucky to have one) do not have COLA increases. Their payments remain fixed for the retiree’s lifetime.
Individuals still working will see the wage base subject to the OASDI tax of 6.2 percent increase from $127,200 for 2017 to $128,700 for 2018. As always, the Medicare tax of 1.45 percent remains on an unlimited amount of wages, with an additional .9 percent tax added for those with incomes above $200,000 (single) or $250,000 (MFJ).
For individuals receiving benefits yet continuing to work, the annual income thresholds have increased for the temporary reductions in benefits. For those under full retirement age (FRA) the annual income threshold rises to $17,040 for 2018. This means that while receiving benefits in early retirement, for every $2 of income above this threshold, benefits are reduced $1. The threshold increases in the year an individual reaches FRA to $45,360. These thresholds are annual, but the calculation is done monthly per individual.
It should also be noted that once an individual reaches full retirement age, these temporary reductions stop, and the benefit is recalculated. In other words, once and individual reaches FRA, he or she can earn as much as they want, and not have their benefit reduced. It should also be mentioned that temporary reductions are in addition to permanent reductions that occur when benefits are taken before FRA.
Finally, should it make sense for their situation, individuals may consider delaying their benefits after FRA. This allows an individual to receive a two-thirds of 1 percent monthly increase, or 8 percent annually, on their primary insurance amount (PIA). So not only does Social Security have a COLA, it also allows those who delay a permanent increase in their benefit, up to 8 percent annually (until age 70), with an inflation adjustment.
Sterling Raskie, MSFS, CFP®, ChFC®
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