October is a big month for those who currently collect or are planning to collect Social Security. Each year, the Social Security Administration (SSA) releases the details on upcoming changes to Social Security benefits in the following year. From what we can see, Social Security benefits will look a bit different for most recipients in 2018.

For Baby Boomers planning to retire, knowing the intricacies of Social Security benefits helps them to make educated decisions about claiming their benefits. The timing for filing for Social Security benefits plays a huge role in the amount of money you get each paycheck, so it’s important to stay informed. As a new year approaches, knowing what to expect from Social Security changes will help you and your financial advisor come up with a plan to maximize your benefits.

Ready to review the changes for 2018?

1. The Overall Social Security Benefits Amount INCREASES

Every year, Social Security benefits are adjusted to reflect the increase in the cost of living (COLA) for inflation. In 2018, benefits will increase by two percent as the adjustment for COLA.

That may not seem like much, but it’s the largest bump in six years for Social Security. Now, the average recipient will receive $1,404 a month.

While that in itself is pretty remarkable, most recipients shouldn’t get too excited just yet. Not everyone is eligible for the raise. For example, recipients who were enrolled in Medicare and therefore protected from rapid increases by the “hold harmless” clause may see most of their benefits increase eaten up to compensate for the years they’ve paid for Medicare at a lower premium.

Even if a recipient wasn’t under the “hold harmless” clause, the two percent increase may not do much financially. Although the increase is supposed to compensate for inflation, the standard cost of living continues to rise in almost every part of the US at a much higher rate. Although pensions from private employers are becoming a thing of the past, some boomers are lucky enough to receive one. Most private pensions have no inflation protection so any increase in Social Security is welcomed!

2. The Social Security Income Tax Cap INCREASES

Currently, people contribute 6.2 percent of their earnings to Social Security; however, income earned over $127,200 is not considered taxable, which benefits higher earners.

In 2018, we’ll see the ceiling amount for taxable income rise to $128,700. SSA experts predict that approximately 12 million of the 175 million workers who pay Social Security taxes will be affected.

3. Full Retirement Age Increases

The biggest change that seems to be flying under the radar is the increase in the full retirement age for claiming benefits.

If you are unfamiliar with the Full Retirement Age (FRA), it is the standard of measurement for when citizens should consider initiating their Social Security benefits. While you can technically start claiming anytime between 62 and 70 years of age, your FRA is the age where you won’t be penalized.

Starting January 2018, the full retirement age will increase to age 66 and four months for those who were born in 1956- a two-month increase compared to those who were born in 1955.

This increase in age is part of a long-term initiative to increase the FRA slowly from 65 to 67 years old. FRA gradually increased from 65 to 66 but stayed at 66 for 10 years for people born 1943 through 1954. For anyone born in 1955 through 1959, the FRA increases from 66 by adding two months every year to the FRA. Everyone born in 1960 or later will have an FRA of 67

4. The Maximum Amount for Social Security Benefits RISES

With the two percent increase in Social Security benefits and higher taxable wages in 2017, there is also an increased maximum benefit for individuals reaching their FRA in 2018. In 2017, this amount was $2,687 per month or $32,244 per year. In 2018, we’ll see the cap increase to $2,788 per month or $33,456 per year – a max payout increase of 3.7 percent. Of course, individuals who delay starting their benefits beyond their FRA and receive the 8% increase for every year they delay, will receive more than the maximum.

5. New Earnings Limit for Working Retirees Collecting Social Security Benefits

Continuing to work after retirement is a common choice for most recipients, who either want to have some additional income or who just want something to keep them busy.

Those who work while collecting Social Security benefits will be happy to hear about larger earning limits in 2018.

If you are younger than your FRA, you can now earn up to $17,040 per year without being penalized. For those who are past their FRA, there is no earnings limit.  The year you reach your FRA the amount still increases by $480 to $45,360 for the months before your FRA, and the penalty decreases to one dollar for every three dollars earned.

6. The Social Security Administration is Migrating to Digital Records

Another big change for the Social Security Administration (SSA) is a step into the future by going digital with their statements. In 2017, the administration ceased to send paper statements via snail mail and required certain recipients to sign up for an online account. In 2018, it will be a requirement for all Social Security benefit recipients.

The purpose of the switch is to protect the security of the recipients. As an added precaution, signing into your Social Security online accounts will be a two-step process.

In addition to your username and password, you must also provide a valid email address or phone number as a second identification method. This second step applies to every online user for Social Security benefits and protects online accounts from unauthorized users and potential identity fraud.

Even if it seems like a hassle to create an online account for your Social Security benefits, there are advantages. You never have to worry about paperwork being lost in the mail, there is added security to keep your information safe and you can track your Social Security benefits and records at any time.

7. Social Security Benefits INCREASE for Those Collecting Disability

This change also affects those who are receiving a Social Security disability by increasing their payments by the two percent COLA.  The average monthly payment will increase by $24, which brings the total to $1,197 every calendar month.

How do these 2018 Social Security Changes Affect YOU?

As you can see, a lot of changes are on the horizon for Social Security. And while these adjustments may not affect Baby Boomers yet, they should be taken into account as you make your plans to start collecting Social Security. Knowledge of all the Social Security changes and what they mean will help you plan better for the future.

Now that you know what to expect from Social Security benefits in January 2018, here are some tips to prepare for filing a claim:

Wait until your full retirement age…

Even with the full retirement age increasing, you should still wait until reaching it before claiming Social Security. Although you can claim as young as 62 years old, you will be penalized and permanently reduce your benefit.

Waiting until you reach full retirement age results in getting the full payout. Waiting even longer has additional advantages. Claiming for Social Security benefits between your full retirement age and age 70 awards you with an 8 percent increase annually

But don’t wait until after you turned 70 – that’s the maximum age to receive rewards for delaying Social Security benefits and you won’t see any additional advantages for waiting past then.

Start saving for retirement as soon as possible…

Most Baby Boomers worry that they won’t have enough money for retirement. And while it’s always a good idea to start saving money as early as possible, it’s never too late to begin. In fact, saving in your 50s comes with some perks that you may not have experienced when you were younger.

For example, most Baby Boomers tend to have less debt to take care of each month, like student loans, cars and significantly less owed for their homes. This means you may be experiencing more cash now than those in their 20s, starting out with no credit and some with crippling student loan debt.

Since you may have more supplemental income in your later years, your 50s are just as good as ever to start saving for retirement. You can save aggressively and should be able to retire modestly by the time you reach your FRA.

However, keep in mind that relying completely on Social Security benefits could become an issue. Even with the COLA increase in 2017, other programs like Medicare could consume your benefits. And don’t forget that the actual cost of living alone is increasing at a rate much faster than the COLA increase you’re seeing in 2018.

Meet with a Financial Advisor or Planner

Social Security benefits are a tricky beast, made even more confusing with fluctuating FRA’s and changes nearly every year. While most Baby Boomers are now starting to plan for retirement, reaching out to a professional can help you make the best decisions for maximizing your benefits.

There are multiple strategies involved when setting up a plan to claim benefits, and a professional will be able to assist you with selecting the best plan for your situation.

If you’re on the fence about claiming early or are unsure how the 2018 changes may affect you, then working with a financial planner could steer you in the right direction and set your mind at ease.