The Old Age, Survivors, and Disability Insurance program, better known as Social Security, is the largest social insurance program in the United States and one of the largest in the world. Even as fears about its future persist, the fact remains that Social Security accounts for nearly 40 percent of retirement income for the average retiree.
Whether you are currently receiving benefits, plan to apply this year, or are many years from retirement, at least 1 of these 5 changes to Social Security will affect most every taxpayer in 2018:
1. Cost of Living Adjustment
Everyone already receiving benefits will see their monthly checks increase by 2%, the largest adjustment since 2012. The average increase will be from $1,377 per month to $1,404. This might not seem like much, but it beats 2017, which saw a COLA of just 0.3%, and 2016 with no increase at all.
2. Full retirement age increasing
For those born in 1956, the Full Retirement Age is increasing to 66 and 4 months, up from 66 and 2 months. Why is this important? If you choose to claim Social Security early at 62, forgetting those extra months will further reduce your already reduced benefit.
3. Maximum benefit increasing
If you choose to retire at Full Retirement Age, the maximum benefit you can receive is increasing 3.7%, from $2,687 per month to $2,788 per month. Like the Cost of Living Adjustment, not a huge increase. But every dollar that takes pressure off your investments for monthly income is a bonus.
4. Taxable wage base increasing
Social Security and Medicare are funded by taxes paid as a percentage of how much you earn. You seem them on your paycheck as FICA. There is a cap on how much of your income is taxed for Social Security. In 2017, the first $127,200 was taxed. That cap is increasing to $128,700 in 2018. This means higher income earners will see slightly higher Social Security taxes in their paychecks, though the reduction in the top income tax rate for 2018 will help offset this.
5. No more paper statements
Printed annual statements that detailed your past yearly earnings, and your projected Social Security benefits at early retirement, full retirement, and delayed retirement ages, ended in 2017. Beginning in 2018, the only way to see your benefit projection is by creating a free online account at www.ssa.gov.
Other important changes coming to Social Security in 2018 further highlight the need to know how it works, and your options at retirement. Your financial advisor can help you schedule an appointment with an agent at your local Social Security office to get answers. Above all, a well-executed income plan will help insure that you make the right Social Security decision and avoid running out of money in retirement.
What daunts you most about the newest changes?
What questions do you have about Social Security for your own personal retirement?
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Damon King is a CERTIFIED FINANCIAL PLANNERTM professional, an independent Investment Adviser, and wealth management specialist with ChappelWood Financial Services in Edmond, OK. He is co-host of "It's All About the $Money, Honey!" on NewsRadio 1000 KTOK in Oklahoma City, and is the lead instructor for the Rock Your Retirement financial enrichment series. He can be reached at Damon@ChappelWood.com or 405-348-0909.