Reports from the Social Security Administration (SSA) have shown that a percentage of 62% of aged recipients receive close to half of their wages from Social Security. Entrepreneurs and startups need to think about the financial implications early. For financial planning, the cost-of-living adjustment (COLA) is normally calculated to match the inflation rate and how to counteract its’ effect before the official announcement is made on Social Security changes.
The announcement made by the Social Security Administration (SSA) annually every October informs citizens of changes that have been made and when they will take effect in the forthcoming year. Here is a look at the top 3 security changes that took effect on the 1st of January 2018.
A rise in the maximum taxable earnings
The maximum taxable earnings are said to go higher compared to 2017 due to a rise in the Consumer Price Index (CPI-W) from 2016 to 2017, increasing from $128,200 to $128,400. In 2017, all those receiving an income ranging from $0.01 and $127,200 were included in the payroll tax at a percentage of 6.2%, while those earning over $127,200 were not subjected to any tax.
The 6.2% tax will still stand in 2018, although there will be a rise in the tax cap to $128,400. As stated by the Social Security Administration, around 12 million employees are to be affected by this change.
One disadvantage that comes with the rise in the taxable earnings is the increase in the maximum amount of earnings that the SSA uses in calculating retirement benefits. The earnings limit will rise from $44,880/year to $45,360/year for employees turning 66 years in 2018 with a deduction of $1 for every $3 if it exceeds $45,360.
Employees that are under full retirement age (FRA) which is 66 years old for those born between 1943 to 1954, will have their earnings limit rising from $16,420/year to $17, 040/year. For any earnings exceeding $17, 040, $1 will be debited from every $2.
The full retirement age (FRA) increases by two months
The FRA refers to the age when one is entitled to receive their full benefits and is applicable to those who were born between 1943 and 1954. One can still claim and start receiving benefits from the age of 62 years, but any benefits claimed and received before 66 will have a permanently reduced percentage of their retirement benefits. It may benefit you to continue working, even if it is a side hustle for extra income.
Claiming benefits after attaining the full retirement age guarantees 100% retirement benefits. From 2018, the FRA will increase by two months every year till it gets to 67. The FRA for those born in or after 1960 will be 67. Employees born in 1956 have an additional two months resulting in their FRA being 66 years and four months from the previous 66 years and two months for those born in 1955.
Beneficiaries will be receiving higher payments
The total tax rate for Social Security and Medicare is 7.65%, which will still be the same in 2018. Many beneficiaries feel that part of their income is used up by the 1.45% Medicare portion taxed on all earnings. However, from 2018, there will be a higher payout for Supplemental Security Income (SSI) beneficiaries where they will receive a 2% COLA.
Since there is no mailing of paper Social Security statements to those under 60 the earnings and any future benefits can only be accessed online. One has to open a Social Security account for periodic checks. Lost and replacement of Social security cards is also available online at https://www.application-filing-service.com/socialsecuritycard/lost-and-replacement-social-security-cards/
Even if you are not a senior entrepreneur, keep abreast of these changes to help with your retirement options.