Millions of retired American workers rely on Social Security as a significant source of retirement income. While Social Security doesn't increase every year, it will be increasing in 2018.
The amount that you'll receive in Social Security will depend on many factors, but everyone will get the same boost to benefits next year. Here's how much money you can expect to get from Social Security in 2018, and how a little-known rule could end up taking a big bite out of your increase.
A bit of background
As a refresher, Social Security provides a valuable financial safety net in retirement. The amount you receive in Social Security benefits depends on how many years you work, what your average income is over your career, and when you begin receiving your benefits.
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To qualify for Social Security, you need to accumulate 40 work credits. Most workers collect this many credits if they work 10 years at a job that's subject to payroll taxes.
To calculate your exact benefit amount in retirement, Social Security adjusts your average monthly income over your highest 35 income-earning years for inflation. If you've worked fewer than 35 years, zeros are used in the calculation, which reduces your payment.
Once they've calculated your average monthly inflation-adjusted income, Social Security uses multipliers at specific bend points to reduce the size of your Social Security benefit. The resulting figure is the amount of your benefit at your full retirement age, which, for people born in 1960 or later, is age 67.
If you decide to begin receiving your benefits sooner than full retirement age, your Social Security will be reduced by a fixed percentage for every month that you claim early. The earliest age you can begin receiving your benefits is age 62, and if you claim at that age and your full retirement age is 67, you'll net 70% of your full retirement age benefit.
Alternatively, you can increase your full retirement age benefit by waiting to collect Social Security. Social Security pays delayed retirement credits for every month you delay taking benefits, up until age 70. These credits work out to about an 8% annual increase, so a person with a full retirement age of 67 who begins taking benefits at age 70 will receive 124% of their full-retirement-age benefit.
What will Social Security benefits be in 2018?
Social Security evaluates inflation every year to decide whether or not to increase benefits to recipients. It does this by averaging a common inflation measure, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), for the third quarter and then comparing it to the average inflation figure from the most recent third quarter that resulted in benefits increasing. Because Social Security inched up 0.3% in 2017, this year's third quarter is being compared to last year's third quarter.
The good news is that year-over-year inflation will increase Social Security benefits by 2% in 2018. That may not sound like a lot, but it's the biggest increase in Social Security benefits since 2011.
The bad news is that a 2% increase doesn't really increase the size of your Social Security check very much. The average person receiving Social Security in 2017 is getting $1,377 per month, so a 2% increase boosts the average monthly payment by only $27.54. For convenience, the following table shows how the increase will impact people receiving benefits of various amounts.
|
Social Security Payments in 2018 | ||||||
|---|---|---|---|---|---|---|
|
2017 benefit |
$1,000 |
$1,377 |
$1,500 |
$1,750 |
$2,000 |
$2,250 |
|
Cola increase |
2.00% |
2.00% |
2.00% |
2.00% |
2.00% |
2.00% |
|
Increase amount |
$20 |
$27.54 |
$30 |
$35 |
$40 |
$45 |
|
2018 benefit |
$1,020 |
$1,405 |
$1,530 |
$1,785 |
$2,040 |
$2,295 |
But here's the kicker
The increase in Social Security will happen automatically, so you don't need to do anything to get it. However, don't be surprised if you don't see the entire amount of your increase show up in your monthly checks.
Why? Because rising Medicare Part B premiums might end up eating up a big chunk of your newfound income. Last year, a hold-harmless rule kept Medicare Part B premiums from increasing by the amount they were supposed to increase. In 2018, most people will no longer be protected by it.
The hold-harmless provision caps annual Medicare Part B premium increases to whatever Social Security increases annually. Because Part B premiums have been growing more quickly than Social Security, many people on these programs are paying less per month in Part B premiums than people who recently enrolled.
In 2017, recipients protected by the hold-harmless rule are paying about $109 per month for Part B premiums, and new recipients are paying $134. Medicare hasn't announced official Part B premiums for 2018, but they're expected to remain the same as 2017. If they do, then many recipients will see their Part B premium increase by $25, which represents a pretty big proportion of the planned Social Security increase.
