Every October, the Social Security Administration announces whether there will be a Cost-of-Living-Adjustment (COLA) to Social Security Benefits for the upcoming year.
As costs rise, a COLA for any payment stream (like Social Security) is very beneficial as it is supposed to rise with inflation. Not all pensions have COLAs, so make sure to be aware before making any decisions on a corporate pension.
The first COLA to Social Security was introduced in 1975. And there has been a COLA applied every year save three since that time. The COLA is targeted to keep up with overall inflation. For example, the highest increase in Social Security Benefits came in 1980 when there was a 14.3% COLA in one year. Of course, in 1980, there was massive inflation of an average of 13.53% during that same year (per inflationdata.com).
The 2018 COLA will be 2.0% compared to 0.3% last year and 0% in 2015. This is the first time since 2011 the COLA will be 2% or higher. The Social Security Administration publishes a more complete history of COLAs in regard to Social Security HERE.
One thing still up in the air is whether Medicare Part B (or other packages) will increase. This is something to keep an eye on as we move into the New Year. We wrote a blog post on Medicare costs HERE.
EXTRA! EXTRA! For those not drawing quite yet:
If you are still working, here is some news that will apply directly to you.
Social Security also announced that there will be a slight increase to the limit on taxing social security from an individual’s earned income. Currently, all earned income (from wages, or self-employment income) is taxed in the form of Social Security Contributions (this is often labeled on your paycheck as FICA). The Social Security tax rate is 12.4% (6.2% from the employee, and 6.2% from the employer – if your self-employed, you pay both) – note we are only discussing Social Security, Medicare is a completely separate process.
For 2018, the limit was raised from $127,200 to $128,700. See the chart below for more perspective.
Earnings Taxable for Social Security
We will continue to keep you all updated on these areas as changes are published.
There are many different ways to take Social Security, let us know if you have questions or want to have a more comprehensive analysis done on your Social Security Benefits.