January is a key month for those turning full retirement age in 2018.
For those turning full retirement age in 2018, they can earn $45,360 and collect starting in January 2018. The key to this is they MUST contact Social Security by January 31 in order to be protected for January.
For your clients that were born in 1952, they are turning full retirement age in 2018. Of course, beginning with the month they turn full retirement age and continuing, they can make as much money as they want and receive their Social Security benefits. However, a highly missed feature is the increased annual earnings limit the year an individual turns full retirement age. In 2018, for those turning full retirement age, they can earn $45,360 and we only count earnings before the month the individual reaches their full retirement age.
Example: John reaches full retirement age in August 2018. John’s monthly benefit at full retirement age is $2200/ month. John is working and is expected to earn $87,000 for the year with $51,000 of it in the first 7 months from January through July. John has earned $5,640 over the $45,360 limit.
If John chooses to have his Social Security begin in January 2018, it is reduced by 7 months to $2114/ month. In addition, because John earned $5,640 over the limit, we withhold $1 for every $3, so John owes Social Security $1,880.
John would still receive $12,918 out of the $14,798 for the first 7 months. ($2114 a month January through July minus the $1,880 = $12,918).
Beginning in August 2018, John would receive $2114/ month regardless of how much he earns.
*In addition, once John reaches full retirement age, we will recalculate his benefit amount to give him credit for any months in which he didn’t receive a benefit because of his earnings. (1 month in his case, so instead of a 7-month reduction, it is adjusted to a 6-month reduction).
TIP: John must contact (file online, call or visit) Social Security by Jan. 31 in order to be protected for January.
Question: Social Security announces a 2% increase in benefits for the coming year. Client gets a notice saying that his monthly benefit will go up from $1,448 to $1,455. Well, 2% is a $28 monthly increase not a $7 increase. There are no changes in the Medicare Part B premium to offset the increase. Can you explain?
Answer: There is a law called the “hold harmless” provision (also known as Variable SMI Premium) which protects approximately 70% of beneficiaries enrolled in Medicare Part B from paying a higher premium to avoid reducing their net Social Security benefit. So, in 2017, because your client received a .3% cost of living increase, yet the Medicare Part B premium went from $121.80/month to $134/month (and, for the same reason, many were still paying the 2015 Part B premium of $104.90), your client didn’t pay the full Medicare Part B premium. All new beneficiaries on Medicare paid $134/month in 2017. However, now that your client received a 2.0% cost of living increase, he is able to pay the full Medicare Part B premium which remains $134/month in 2018.