Full Social Security Retirement Benefits and a COLA Update

Requirements for full Social Security retirement benefits are changing in 2018. Also, here is an update on the 2018 COLA.

Some potential Social Security retirement beneficiaries need to be aware of changes occurring that will impact Social Security payments. A person’s birth date impacts when full Social Security payments are available and the amount of the reduction in payments if a person has not reached full retirement age.

Determining Your Full Retirement Age

A full retirement age is the age a person becomes eligible for full Social Security retirement benefits. The full retirement age was 65 for a long time. But, beginning with people born in 1938, the full retirement age has been gradually increasing. Full retirement age will be 67 for people born in 1960 and later.

The full retirement age for Social Security is 66 and two months for people born between January 2, 1955 and January 1, 1956.  If you were born during that time, you  are eligible to receive permanently reduced retirement benefits when turning 62 in 2017.

Impact on New Retirees Born in 1956 (or Later)

Unless a new Social Security bill is passed, the full retirement age for new retirees born in 1956 will be rising by two months in 2018 to 66 years and four months. This means that if you were born in 1956 (or on a later date), you are going to have to wait longer to receive 100% of your Social Security benefits.

If you claim these benefits before your full retirement age, you will receive a steeper reduction in your lifetime payments.

So, as the full retirement age for Social Security benefits increases, there are larger benefit reductions if you claim Social Security benefits before reaching your full retirement age.

For example, if you apply for benefits in 2017 and you are 62 years old, your monthly benefit will be reduced by about 26 percent. Of course, you will receive a check at an earlier age than your full retirement age.

How long do you think you will live? If you knew the answer, deciding when to receive Social Security would be an easier decision.

Here is how to calculate your full retirement age.

Considerations in Deciding When to Receive Social Security Benefits

The Social Security Administration provides the following guidance for people thinking about when to start claiming Social Security benefits:

  • You may start receiving Social Security benefits as early as age 62 or as late as age 70. The longer you wait, the higher your monthly benefit.
  • Your monthly benefits are reduced permanently if you start receiving payments any time before full retirement age.
  • If you die, your retirement date can affect the payment to your surviving widow or widower.  If you started receiving retirement benefits before full retirement age, Social Security will not pay your surviving spouse the full retirement age benefit amount.  The payment to the surviving spouse is based on the amount of your reduced benefits.
  • If you elect to receive benefits before you reach full retirement age, you should understand how continuing to work  affects your Social Security benefits.

COLA Update for 2018

How much of a Cost of Living Adjustment (COLA) will there be for Social Security and federal employee retirement benefits in 2018? We will not know the answer until October, but we can track the progress of inflation and its impact on COLA payments for the coming year.

Federal retirees received a 0.3 percent cost-of-living adjustment (COLA) to their civil service annuities in January 2017. There was the same adjustment for Social Security benefits and military retirement annuities.

As of March, there has been a 1.11 percent increase in the average relevant Consumer Price Index used to determine the 2018 COLA adjustment. So, while we do not know how much the COLA increase will be in January 2018, we do know it is likely to be considerably higher than last year’s 0.3 percent.

The Federal Reserve often cites a target inflation rate of 2 percent. There now appears to be a good chance that the COLA increase next January will match a more typical increase than smaller increases (or no increase at all) in recent years.

Keep in mind that the “raise” retirees are to receive with a COLA  is intended to match the inflation rate. It is not designed to create a financial advantage for senior citizens by increasing their purchasing power.

COLA’s are generally less than the annual increase in medical costs each year. These medical costs generally impact senior citizens the most. As a result, many retirees will gradually see a decline in their purchasing power over a number of years.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47