Social Security COLA jumping 2% for 2018, but don’t celebrate just yet

Written on Oct 20, 2017

The Social Security Administration has announced a 2% increase in benefits for 2018, its largest cost-of-living adjustment (COLA) since 2012.

More than 69 million Americans will receive the bump in benefits, including more than 61 million Social Security recipients and more than 8 million recipients of Supplemental Security Income benefits. (Some people are beneficiaries of both programs.) They will receive an average $25 more per month.

Although the 2018 COLA is the largest in several years, it is less than the 2.2% that the Social Security Board of Trustees had projected in July. It follows a 0.3% increase in 2017 and no increase in 2016.

In addition to the larger COLA, the Social Security Administration raised the ceiling on earnings subject to the Social Security payroll tax to $128,700 from $127,200.

It also increased the limit that working recipients can earn before being subject to deductions in benefits. The earnings limit for workers younger than their full retirement age, which is 66 for those born in 1943 through 1954, rises to $17,040 from $16,920. For every $2 earned above that level, their benefits are cut $1.

For those working recipients who turn 66 in 2018, the ceiling is set at $45,360, up from $44,880. Every $3 earned above that level reduces benefits by $1. A table of all the changes can be found here.

But the Senior Citizens League is cautioning that the extra money could get eaten up by Medicare premiums for about 70% of retirees because of a so-called "hold harmless" legal provision that has protected the majority of retirees from increased Medicare Part B premiums if it would reduce their Social Security benefits. It affects people whose premiums are deducted from their monthly Social Security check. (Note: New Medicare enrollees are not protected by the provision.)

Premiums for Part B, which primarily covers doctors' visits and other outpatient care, can change annually, as it is expected to fund about 25% of the program's annual expected per-beneficiary spending. For 2017 the premium was $134, with higher earners paying more.

Because of the hold harmless provision, the actual amount paid by most Medicare recipients is about $109 monthly, research from the The Senior Citizens League shows.

So even if Part B premiums don't rise in 2018, the average retiree will see that extra $25 go toward paying the difference between their monthly Social Security check ($109) and the Part B cost ($134).

The mid-year Medicare trustees report projects premiums to remain at $134 in 2018 and 2019, although that could change. Exactly when the government will announce its 2018 Part B premiums this year is uncertain, as it varies under different administrations.

The amount of earnings subject to the Social Security tax is also changing next year, to $128,700 from $127,200. Of the estimated 175 million workers who will pay the tax next year, about 12 million will pay more because of this change, according to the federal agency.

COLAs are calculated using a formula in the Social Security Act based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

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