Last Week’s Question of the Week: When social security computes your benefit, how many years of earnings do they use in their calculation? ANSWER: Social Security takes into account your length of work history and earnings history. In particular, it accounts for your 35 highest-earning years.
HOST: So, we are starting off the year talking about changes in Social Security for 2018! Positive changes?
KLAAS FINANCIAL: Yes, we are always positive on this show!
So, the good news is that Social Security beneficiaries are getting a raise. Thanks to the release of the Bureau of Labor Statistics’ September inflation data. In 2018, Social Security beneficiaries will receive a 2% cost-of-living adjustment (COLA). While that may not sound like much — it works out to about $27 more a month for the average retired worker — it’s actually the best inflationary increase we’ve seen in six years. **A majority of recipients may actually see little or no raise at all. If you’re enrolled in Medicare and have your Part B premiums (outpatient services) deducted from your monthly Social Security.
How about more good news? The maximum monthly payout rose quite a bit. Should you have earned enough throughout your lifetime to qualify for the maximum monthly benefit at full retirement age, you can expect a pretty sizable jump in your monthly payout in 2018. According to the SSA, the maximum payout at full retirement age — the age at which you become eligible to receive 100% of your monthly payout — will increase $101 a month, to $2,788 a month, in 2018.
HOST: Did I hear that the full retirement age is rising?
KLAAS FINANCIAL: Yes, the fact is that the full retirement age is rising in 2018. Newly eligible retirees who were born in 1956 will have to wait until they’re 66 years and four months old before they’ll be able to receive 100% of their monthly retirement benefit. That’s a two-month increase from 2017 for those born in 1955.
For those not familiar with the way Social Security claiming works, you become eligible at age 62, with your benefits growing by 8% annually until age 70. In other words, the longer you wait to claim, the more you’ll get. Your full retirement age is your 100% payout. If you claim at any point between age 62 and a month before your full retirement age, your benefits will be permanently reduced. If you lay claim to your benefits at any point after your full retirement age, you can actually earn more than 100%.
Don’t know your full retirement age? Go on www.ssa.gov to find out your info!
HOST: What about qualifying for social security, is that changing too?
KLAAS FINANCIAL: Yes, qualifying for Social Security got incrementally harder. First of all, no, you’re not automatically given Social Security as a U.S. citizen. In order to qualify, you have to earn 40 lifetime work credits, of which a maximum of four can be earned annually.
In 2017, you were able to earn a lifetime work credit for every $1,300 in earned income. Therefore, $5,200 in earned income was enough to max-out your coverage credits for the year. In 2018, it’ll now require $1,320 in earned income per lifetime work credit, or $5,280 for the full year.
HOST: Isn’t there a limit to how much income you can earn when you are collecting Social Security?
One aspect of Social Security is that if you enroll prior to your full retirement age and you’re still working, the SSA can withhold part, or all, of your benefits based on how much you earn per year.
In 2017, early filers who were under the full retirement age and had earned income over $16,920 a year ($1,410 a month) would have $1 in benefits withheld for every $2 in earned income over $16,920. For 2018, this threshold is inching up by $10 a month, or $17,040 annually.
We’re also going to see a similar change made for those folks who claim Social Security during the year they’re set to reach full retirement age, but aren’t there yet. In 2017, $1 in benefits could be withheld for every $3 in earned income over $44,880 ($3,740 a month) if you haven’t yet reached full retirement age, but will do so late this year. This threshold is set to increase by $40 a month ($3,780), to $45,360 annually.
It’s also worth noting that if the SSA withholds your benefits and keeps you from double dipping between Social Security income and working wages, you don’t lose your benefits forever. Once you cross full retirement age, you’ll get them back in the form of a higher monthly payout.
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.