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Social Security in 2018: 6 Key Facts You Need to Know

By Dan Caplinger - Oct 29, 2017 at 7:02AM

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Find out what's in store for the program next year.

Social Security is vital for the financial planning of tens of millions of Americans, and every year, the Social Security Administration makes slight adjustments to key provisions of the retirement program. The SSA just released its annual report discussing changes to Social Security for 2018, and although some key components of the program are staying the same, others will see some minor adjustments. Below, you'll find the most important facts about what's happening next year with Social Security.

1. The 2018 cost-of-living adjustment will be 2%

Social Security recipients will see their monthly checks rise by 2.0% starting in January compared to what they received in 2017. The reason: The CPI-W measure of inflation rose by that amount during the months that the SSA uses to calculate COLAs each year. That will send the average monthly benefits for retired workers up to $1,404.

Some retirees won't see that entire 2% show up in their bank accounts. For those who participate in Medicare, premium increases in recent years could divert some of the COLA toward covering higher medical costs. Nevertheless, the 2% rise is the largest since 2012 and will be a welcome change from the tiny to nonexistent COLAs that Social Security recipients have seen in past years.

2. Payroll tax rates stay the same

Tax rates for Social Security and Medicare will be the same as in 2017. Employees will pay a combined 7.65% of their wages into the programs, while employers will match that amount with a 7.65% tax of their own. The Social Security portion of what employees pay is 6.2%, while the other 1.45% goes to Medicare. Those who are self-employed will be responsible for the combined 15.3% amount for both employee and employer.

Social Security card mixed into $20, $50, and $100 bills.

Image source: Getty Images.

3. Maximum taxable earnings will go up slightly

Taxes on Social Security are imposed only up to a certain maximum amount of earnings, but that maximum is going up in 2018. The new limit will be $128,700, up from $127,200 in 2017. That means that the maximum Social Security tax for employees in 2018 will be $7,979.40, up $93 from a year ago.

4. Earnings for determining Social Security coverage will rise a bit

Eligibility for Social Security benefits is determined in part by measuring quarters of coverage, also known as Social Security credits. Workers can earn up to four credits each year, and 40 are needed to qualify for retiree benefits. The amount of earnings it takes to get one credit will go up by $20 next year to $1,320. This means that it will take $5,280 in order to earn the maximum four credits in 2018.

5. Early recipients can earn a bit more without forfeiting benefits

Those who take Social Security before reaching full retirement age are subject to provisions that require them to forfeit a portion of their monthly benefits if their wages and salary are above certain thresholds. For those who are under full retirement age, a lower threshold applies, and you lose $1 for every $2 you earn above the threshold. Those who reach full retirement age during the year are subject to a higher threshold and to a less draconian forfeiture provision of $1 for every $3 over the limit.

The threshold amounts will rise slightly in 2018. The lower threshold will be up by $120 to reach $17,040, while the higher threshold of $45,360 will be $480 higher than it was in 2017. Every month's worth of withheld benefits results in recipients being treated as if they had started collecting benefits a month later than they did, making their subsequent checks a bit larger. Yet the amount taken away is an immediate hit.

6. Maximum benefits are on the rise

Finally, Social Security will be a bit more generous to its highest-income beneficiaries. The maximum benefit will rise by $101, hitting $2,788 per month. Earning that amount requires having maximum earnings for at least 35 years of work history, but even though relatively few people earn the actual maximum, many higher-income recipients come close to that top figure.

Be smart about Social Security

Changes to Social Security happen every year, but some things also stay the same. Knowing what to expect from Social Security in 2018 is important so that you can plan accordingly and make the most of your hard-earned benefits.

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