Every year, small changes are made to Social Security and Medicare. 2018 is no different. In this blog, we are going to highlight some of the changes for Social Security and Medicare to help you stay up to date on what’s happening. Here is what you need to know:
Cost of Living Adjustments for Retirees
Retirees will now get a cost-of-living adjustment (COLA) of 2%. This is the largest COLA increase in the past six years. This will result in an average monthly increase of $27 per person.
Medicare Has Higher Premiums
It should be no surprise that Medicare’s premiums are rising. In 2018, most beneficiaries of Medicare will pay around $134 per month for Part B. This is an increase of $25 per month. This increase will more than eat up the Social Security COLA.
More Taxes for Those Still Working
The Federal Insurance Contributions Act (FICA) – aka payroll tax – is not decreasing. Payroll taxes will be rising for many workers, and this money funds Social Security. The cap on income subject to payroll taxes increased by $1,200 this year, raising it to $128,400.
Both employees and employers pay 7.65% each for the first $128,400 of income for 2018. 1.45% of the 7.65% tax is used to fund Medicare.
One important thing to note is that there is no cap on this portion of the payroll tax. For example, anyone who makes more than $128,400 is still subject to the 1.45% Medicare tax. Additionally, single people who earn more than $200,000 and married couples who earn more than $250,000 will have a high-income surcharge of 0.9% in 2018.
Early Retirees Can Earn More & Avoid the Dreaded Social Security Claw Back
If you take Social Security early, but continue to work, you will be subject to a potential claw back/reduction in benefits. In 2018, the income limit is $17,040, which is an increase of $120. Once you pass that threshold, you will begin to lose benefits. If you earn more than $17,040, you will forfeit $1 in benefits for every $2 of earned income over $17,040.
For those at full retirement age this year, 66, you can earn up to $45,360 in the months prior your birthday without risking any benefits. This is an increase of $480 from last year. Those who earn over $45,360 will lose $1 of benefits for every $3 over that amount.
The good news here is that these earning caps vanish once you reach full retirement age. The benefits lost will be restored in the form of higher benefits.
Full Retirement Age is Rising
In the past, it was a common thought that retirement began when you turned 65. However, this number has changed. Today, people born after 1954 should plan to retire when they’re 66. Also, it will now cost even more for those who need to take these retirement benefits early.
The younger you are today, the older your full retirement age will be, and the larger your penalty will be for taking benefits early.
Medicare Surcharge Changes
Surprisingly, high earners in retirement are defined by a modified adjusted gross income (MAGI) exceeding $85,000 for individuals. This number is doubled for couples, making it $170,000. If you make more than these incomes, you will pay even more for both Medicare Part B and Medicare Part D insurance premiums.
The underlying premiums for Part B remain the same this year, with a range between $187.50 to $428.50 per person, per month. In 2018, your surcharges are based off your 2016 tax returns. So, if you had income above $133,500 (single filers) or $267,000 (joint filers) you will have higher Medicare premiums in 2018.
The Cost of Qualifying for Benefits is Rising
In order to qualify for Social Security and Medicare, you must earn at least 40 credits. You get up to four credits per year of work. In 2018, each credit will represent $1,320 in earning, which is a $20 increase from last year. To get the maximum four credits per year, you will need to have a MAGI of at least $5,280.
Social Security Benefits Are Taxable
If you make too much money, your benefits are taxable. These benefits are taxed based on your combined income. Once your income surpasses $34,000 you will pay taxes on 85% of your Social Security benefits. Couples who earn between $32,000 and $44,000 will have to pay taxes on 50% of their Social Security benefits. Those will incomes above $44,000 will have 85% of that number being taxed.
These changes may seem small in comparison to previous years, however these could potentially have dramatic effects when compounded out over 30 or 40 years of retirement. It’s important to ensure that you are prepared for retirement.
Additional Sources: https://www.forbes.com/sites/davidrae/2018/04/03/social-security-medicare-changes-2018/
Advisory services offered through Coppell Advisory Solutions, LLC dab Fusion Capital Management, which is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission and does not imply that the advisor has achieved a particular level of skill or ability. All investment strategies have the potential for profit or loss. Third party ratings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation.