This Just In: Cost of Living Adjustment

Contributed by: Nick Defenthaler, CFP® Nick Defenthaler


In recent weeks, it was announced that monthly Social Security benefits for more than 66 million Americans will be increasing by 2% starting in January 2018.  Who doesn’t love a pay raise, right?  This cost of living adjustment (COLA for short) is the largest we’ve seen since 2012.  To put the 2% increase in perspective, 2017 benefits crept up by a measly 0.3% and 2016 offered no benefit increase at all. 

Unfortunately, as many can attest to who are still in the work force, your “raise” may be partially or fully wiped away due to the increase in cost for medical insurance through Medicare – enter the "hold harmless" provision.  Medicare premiums for 2018 will be announced later this year. 

If you’re like many, this will probably cause some frustration knowing your increase could very well be going right back out the door in the form of medical premiums.  However, it’s important to remember that Social Security is one of the only forms of guaranteed fixed income that will rise over the course of retirement.  For those lucky enough to still have access to a pension, it’s extremely rare to have a benefit that carries a COLA provision. 

While Social Security checks will be higher in 2018, so will the earnings wage base you pay into if you’re still working.  In 2017, the first $127,000 was subject to Social Security payroll tax (6.2% for employees and 6.2% for employers).  Moving into 2018, the new wage base grows to $128,700 a 1.3% increase.  This translates into an additional $105 in tax each year for those earning north of $128,700. 

Social Security plays a vital role for almost everyone’s financial game plan.  If you have questions about next year’s COLA or anything else related to your Social Security benefit, don’t hesitate to reach out to us.

Nick Defenthaler, CFP® is a CERTIFIED FINANCIAL PLANNER™ at Center for Financial Planning, Inc.® Nick works closely with Center clients and is also the Director of The Center’s Financial Planning Department. He is also a frequent contributor to the firm’s blogs and educational webinars.

This information has been obtained from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed. Opinions expressed are those of Nicholas Defenthaler and are not necessarily those of Raymond James.