Seniors, Savers Benefit From Cost-of-Living Increases in 2018
Higher inflation has its advantages.
Inflation remains at historic lows, but a modest uptick in 2017 means retirees will get a small raise, and workers will be able to save more money in tax-favored retirement accounts.
Social Security beneficiaries will get a 2% cost-of-living adjustment in benefits this year, the largest increase since 2012. That raises the average monthly payout for a retiree by $27, to $1,404. The maximum monthly payout for someone retiring at full retirement age (currently 66) is $2,788, up about $100.
However, there’s a good chance that most, if not all, of the increase will be consumed by higher Medicare premiums, which in most cases are deducted from Social Security benefits before the money hits your bank account. The basic Medicare premium will likely be $134 a month in 2018, or $25 more than the average premium paid by most enrollees in 2017. If you’re getting the average hike in Social Security, that would leave just $2 more a month.
For those still saving for retirement, contribution limits for 401(k) and other employer-provided retirement savings plans will increase by $500. Maximum contributions to health savings accounts will go up, too. Limits for traditional and Roth IRAs will remain at $5,500 ($6,500 if you’re 50 or older).
But for high-income workers, there’s a downside to inflation. Workers will pay Social Security taxes on up to $128,400 in earnings, up from $127,200 in 2017. That means workers who earn more than the 2017 limit will fork over up to an additional $93 to Uncle Sam.