For the approximately 61 million people currently receiving Social Security benefits, a slight benefit increase of 2% will take effect in January 2018. For example, this means that if you receive $1,500 a month currently, that amount will increase to $1,530 beginning with the January payment. If you have not yet started receiving benefits, your initial payment will reflect this 2% increase.
This is good news for retirees as this is the first meaningful increase since 2015 when payments increased by 1.7%. The increase is calculated by Cost-of-living Adjustment, or COLA, and ensures that the same amount of goods and services can be purchased with the same amount of benefit dollars, or in “econ speak” not eroded by inflation. It is based on an economic data point (CPI-W), the details of which I will not bore you with; just know that the increase does not need any additional congressional approval and will be included in Social Security benefits paid starting in January.
Of course there are two sides to every story. For workers not yet receiving benefits, the maximum amount of income subject to the Social Security tax (12.4%) will increase to $128,700. A reminder of how this works - if you are employed by a company you pay a 6.2% Social Security tax on income up to $128,700 while your employer pays 6.2% on your behalf. If you are self-employed, you pay the full 12.4% tax on income up to $128,700. This money pays existing retirees and benefit recipients, and does not go into a personal account for your benefit. Any funds remaining after paying existing retirees and benefit recipients, is placed in the Social Security Trust.
If you are nearing retirement it is critically important that you understand the tradeoffs associated with claiming benefits early or waiting until a later date. I work with my clients facing that decision to make sure that we maximize their Social Security benefits and earning potential. If you have questions about this or any retirement related issues, please reach out to me directly.
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