Social Security and Medicare have been a focus on the news in recent years, as elected officials, analysts, and pundits discuss the possibility of these programs changing or coming to an end over the next twenty years. In 2018, there are some changes to how these benefits are distributed but none that change the overall structure of the programs. Instead, these changes simply reflect small adjustments that come with time.
Increased Value of Social Security Credits
To be eligible for Social Security benefits, you need to have worked a sufficient amount in your lifetime to have earned 40 Social Security credits. Credits reflect specific earnings amounts, which have increased over time. In 2018, one credit is worth $1,320 in earnings. You can earn up to four credits per year. This means that a worker will have had to earn at least $5,280 per year in at least ten years of work to be eligible for Social Security benefits.
Increased Full Retirement Age for Individuals Born After 1954
If you are eligible, the Social Security Administration (SSA) will determine the amount of your benefit based on your lifetime earnings. The benefit amount determined is a monthly payout that will then be adjusted based on the age at which you decide to begin taking the benefit. You may begin taking your Social Security benefit as early as age 62, although your benefit will be permanently reduced to accommodate for the longer time you are expected to receive it. “Full Retirement Age” refers to the age at which you may take 100% of your monthly payout. If you choose to wait to receive your benefit until after your Full Retirement Age, you can receive an increased monthly payout.
Most Americans take early retirement and begin receiving reduced benefits before their full retirement age. In 2018, the SSA has increased the Full Retirement Age for individuals born after 1954. If you were born after 1954, this increase in the full retirement age would impact the amount you will receive if you choose to take early retirement.
Born in 1954 or earlier FRA is 66 years
1955 66 years, 2 months
1956 66 years, 4 months
1957 66 years, 6 months
1958 66 years, 8 months
1959 66 years, 10 months
1960 or later 67 years
Cost-of-Living Adjustment Will Increase Monthly Benefits
The Cost-of-Living Adjustment (COLA) is an assessment that the SSA makes each year to ensure that Social Security benefits track with inflation. In recent years, benefits have been relatively stagnant as the COLA has not shown significant changes. In 2018, Social Security recipients will see a 2% increase in benefits, adjusted based on COLA. This increase was reflected in payouts starting in December 2017. SSA states that the average retired worker will receive a monthly benefit of $1,404 as of January 2018.
It is possible, however, that beneficiaries may not see an increased amount in their monthly payouts. In 2018, Medicare Part B premiums are changing as well, which may impact monthly payments. See below.
Increase in Taxable Earnings Cap
The 2017 6.2% Social Security tax paid by employees (and matched by employers) will remain the same in 2018, but the cap will increase. This year, high-earning workers throughout the country will be paying slightly more into social security. In 2017, workers paid their 6.2% social security tax up to a maximum earning of $127,200. In 2018, that maximum will be raised to $128,700.
Increased Monthly Maximum for Disability Benefits
Disability benefits are subject to a monthly maximum, and that number is raising slightly in 2018 as well. For a blind individual, the 2017 monthly maximum was $1,950, compared to 2018’s $1,970. For a non-blind individual, the maximum increases from $1,170 to $1,180.
The Social Security disability program is also increasing: Supplemental Security Income (SSI) is based on a standard monthly payout, which will increase in 2018.
For an individual, the 2017 payout was $735 and has been increased to $750. For a couple, the 2017 amount of $1,103 has been increased to $1,125.
Changes to Medicare in 2018
Part A hospital insurance coverage is free as long as the retired worker paid into the Medicare system for at least ten years or married someone who did. For those who didn’t meet the work requirements, Part A premium costs either $232 or $422 per month. These represent a slight increase from 2017. In 2018, Part A deductibles will increase from $24 to $1,340 per year.
For hospital stays under Part A, the coinsurance costs per day will increase slightly this year. The coinsurance cost per day for a hospital stay is going up about $6 per day until the 90-day limit. Beyond 90 days per period in the hospital, Medicare recipients will pay about $12 more ($670 per day) as coinsurance for their lifetime reserve days.
Medicare Part B provides for doctor visits and other outpatient services. Part B will continue to cost $134 per month in 2018. Even though that does not appear to be a change from previous years, it will have an impact on 70% of Medicare enrollees. These enrollees have been paying a lower monthly premium for Medicare Part B because of a provision called “hold harmless.” Under this provision, there cannot be a net decline in the monthly Social Security payout that people receive. Because most people have their Medicare premiums automatically deducted from their monthly checks, this put a limit on how much could be taken out to pay for health insurance premiums. With the COLA adjustment of 2% this year, this should provide enough extra that those Medicare recipients paying less than $134 per month toward their Medicare Part B premiums will be able to meet that full amount without seeing a difference in their monthly payouts.
For those who pay a surcharge on Medicare Part B insurance due to higher income, there are also some changes. The surcharge rates will remain the same, but the income brackets that determine who pays the surcharges are slightly adjusted. The highest surcharge rate, $294.60 per month on top of the monthly premium, will be charged for individuals with an income of over $160,000, as compared to $241,000 in 2017. For couples, the brackets are doubled.
Part B Premium Surcharge 2017 Income Bracket 2018 Income Bracket
$53.50 $85,000-$107,000 $85,000-$107,000
$133.90 $107,000-$160,000 $107,000-$133,500
$214.30 $160,000-$241,000 $133,500-$160,000
$294.60 Over $241,000 Over $160,000
If you would like to know more about effective retirement planning and how to best plan for your social security beneficiaries, call our office today to schedule a time to speak with an experienced attorney at Brian M. Douglas & Associates, LLC.