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News November 2017

Dollar Sense

A Raise in Social Security for 2018 – Time to Rejoice or Regret?

By Teresa Ambord

Since 2000, SS beneficiaries have lost roughly 30% of buying power...Rising prices affect seniors differently than the general population, as housing, medical costs and prescription drugs represent such a large part of their spending. And the miniscule COLA received for 2017 of .03% only exacerbated the problem.

If you’re collecting Social Security (SS) you will see a raise for 2018, of a whopping 2%. Underwhelming, yes, but actually it’s nearly seven times what SS recipients got last year when the cost of living allowance (COLA) increase was less than a third of 1%: to be exact, you saw a COLA of .3% in 2017. So if your SS check in 2017 is $1,500, for 2018 your benefit should rise to $1,530.

Other figures also adjust, related to Social Security for 2018. For people who are still working, the maximum earnings subject to Social Security taxes will rise from the current level of $127,200 to a new high of $128,700. That increase means that among the estimated 175 million people still working in this country, an additional 12 million will pay more.

 

How Work Affects Your SS Benefits in 2018

Income that you earn before you reach the year of full retirement age while you are collecting SS benefits, you will lose $1 of benefits for every $2 you earn above $17,040. In 2017 it was $16,920.

In the year you reach your full retirement age (for the months prior to reaching that age), you can earn $45,360/year before losing any benefits. After that maximum, you will lose $1 of benefits for every $3 earned in 2018. In 2017, the amount you could earn was $44,880.

Once you reach your full retirement age, you can earn an unlimited amount without losing benefits.

 

How Does this Raise in Benefits Measure Up to Buying Power?

According to a report by the Senior Citizens League (TSCL) entitled the “2017 Social Security Loss of Buying Power Study,” the answer is not good. Since 2000, SS beneficiaries have lost roughly 30% of buying power (7% of which is attributable to projections for 2017 based on the first eight months of the year). Rising prices affect seniors differently than the general population, as housing, medical costs and prescription drugs represent such a large part of their spending. And the miniscule COLA received for 2017 of .03% only exacerbated the problem.

“When costs climb more rapidly than benefits, retirees must spend down retirement savings more quickly than expected, and those without savings or other retirement income are either going into debt, or going without,” said Mary Johnson, TSCL’s Social Security policy analyst and author of the study.

The study noted that the loss of buying power projected for 2017 (of 7%) will be the biggest since 2011, when there was no COLA at all and seniors lost a whopping 8% of buying power. In 2016, there was again, no COLA, and as mentioned, only .03% for this year, adding to the overall loss.

Included in the study was an analysis of the cost of 39 key items between the year 2000 and January 2017. The items were chosen because they are typical of costs that SS recipients must bear, similar to the analysis the government does when determining the Consumer Price Index for the Elderly (as opposed to the general Consumer Price Index).

Johnson adds, “This study illustrates why Congress should enact legislation to provide a more fair and adequate COLA. To put it in perspective, for every $100 worth of expenses seniors could afford in 2000, they can afford just $70 today."

“With the majority of 57 million seniors and disabled Americans depending on SS for at least half of their total income (and one third of them depending on SS for 90% of their income), it seems reasonable that seniors and those who love them should ask Congress to pass more realistic COLAs going forward.”

 

Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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