First, the good news.
The Social Security Administration has announced a 2% increase in retirement benefits for 2018, marking the agency’s largest cost-of-living adjustment (COLA) since 2012. This means that more than 69 million Americans will see their monthly benefit checks go up next year, including more than 61 million Social Security recipients and more than 8 million recipients of Supplemental Security Income benefits. On average, this will mean an extra $25 more per month for recipients.
Also in January, the maximum amount of earnings subject to the Social Security tax will increase from $127,200 to $128,700. As a result, of the estimated 175 million workers who will pay Social Security taxes in 2018, about 12 million will pay more because of the increase in the taxable maximum.
Both of these are important changes to note, but not just because of the impact they will have on so many retirees and taxpayers. In fact, they point to the larger story about retirement in America: It’s getting more and more expensive to retire.
For one thing, inflation can eat into your retirement funds over time, reducing your purchasing power by up to 3% per year. That’s why Social Security is so valuable, as it includes built-in inflation protection that rises each year (in addition to COLAs like this one) to match the rate of inflation.
Social Security’s cost-of-living adjustment is itself is fairly straightforward. Living expenses (including rent, food, medical costs, etc) are rising for everyone, and more money is needed every month to pay the bills. The government’s COLA policies are calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, and this boost is an effort to keep retiree incomes in line with consumer prices.
But retirees are facing even faster-rising costs than the rest of the population. Healthcare is becoming an increasingly large part of many family budgets, and as we live longer we are requiring more and more medical care. What’s more, many other expenses -- from housing, to prescription drugs, to utilities and more -- are rising faster than inflation, putting those that depend on their Social Security checks to pay their monthly expenses in a tight spot.
This is where lifetime health and wealth come together. As expenses rise, it can be difficult to maintain and preserve our quality of life, from a health standpoint, in retirement. That’s why, at Kindur, we’re dedicated to supporting the financial side of the equation.
The increase in the maximum earnings subject to the Social Security tax is intended to help pay for this COLA, but that doesn’t change the fact that the cost of retirement is rising rapidly. Whether you’re on track to retire this year -- or two decades from now -- the time is now to make a financial plan for retirement and put it into action.