Social Security is a vital part of the financial planning strategy for tens of millions of Americans, and between the retirement and disability benefits it pays to workers and the host of family benefits available to spouses and children, it's important to keep up with what's happening with the program. Although many see Social Security as being under a long-term threat, the program is currently slated to stay the course in 2018, with only modest changes that reflect regular annual adjustments to its provisions. Below, we'll look at several key aspects of Social Security and how they'll potentially change in 2018.
How much will typical Americans get in benefits?
Social Security is giving Americans a 2% cost-of-living increase in January, and that will raise what beneficiaries get from the program. The Social Security Administration estimates that the average monthly benefit for retired workers in January 2018 will be $1,404, and for couples who receive two benefits, the average total family benefits will be $2,340 per month.
Survivors of workers will also be entitled to significant benefits. A widowed parent with two children will see average total family benefits of $2,771 per month, while a surviving spouse without qualifying children will get an average of $1,336 monthly.
What's the new full retirement age for those retiring in 2018?
The SSA pays benefits based on a formula that starts with the assumption that you'll retire at your full retirement age. That number in turn depends on when you were born.
For those who are first eligible for Social Security in 2018 because they've turned 62, the fact that they were born in 1956 means that their full retirement age is 66 and four months. If you'll be 62 next year and claim Social Security, you'll suffer a nearly 27% reduction in your monthly payment compared to what you'd get if you waited the extra four years and four months. Interestingly, though, those who will turn 66 in 2018 will be able to claim on their birthday and get full retirement benefits, because the specified age is exactly 66 for those born between 1943 and 1954.
What's the maximum benefit you can get from Social Security in 2018?
Those retiring in 2018 will be able to get bigger payments than in previous years, but the size of the maximum possible Social Security payment will depend on your age when you retire. You can claim benefits as early as age 62, but you'll suffer a substantial reduction in what you receive compared to claiming at full retirement age. Those who wait until age 70 to take retirement benefits can get even more money because of the delayed retirement credits that the SSA rewards.
For 2018, the maximum Social Security benefit for those who are 62 years old will be $2,159 per month, up $6 from 2017. Yet the maximum for those who are 66 will go up more than $100 to $2,788 per month, and the maximum for those who collect benefits at 70 will be $3,698, up $160 from the previous year. Even if you don't collect the maximum, those with high earnings throughout their careers can expect to get fairly close to the maximum amount.
How much of your earnings is subject to Social Security payroll tax?
In most years, the maximum amount of tax that Social Security can collect goes up slightly. That will be the case once again in 2018, during which earnings of up to $128,400 are subject to tax. The tax rate on that amount is 6.2% for the employee and 6.2% for the employer, with self-employed individuals paying the full 12.4% amount.
Most people don't come close to earning the wage limit, and so they can expect to pay the same amount they have in past years. For those who are at the high end of the income scale, however, even modest increases mean paying at least slightly more tax.
Make the most of Social Security
Social Security is a key source of financial support, and keeping track of the changes that happen with the program each year is crucial in order to plan your financial future. Keep these facts in mind, and you'll be better prepared to hit the ground running in 2018.