Important Updates

With the recent fires being 90+% contained as of this morning, let's review some of the important announcements by the Social Security Administration and the IRS in the last couple of weeks.

Social Security benefits for more than 66 million beneficiaries will increase by 2% in 2018. As a refresher, the Social Security Administration (SSA) reviews Consumer Price Index data for the third quarter (which ended in September) and compares this versus a year ago. Since the index, specifically the CPI-W, or Consumer Price Index for Urban Wage Earners and Clerical Workers, increased by 2% during the period, this sets the increase amount for beneficiaries the following year.

The increase marks the highest pay raise for retirees in several years. In fact, in three of the past ten years the Cost of Living Adjustment (COLA) was zero. 2016 was one of these years and the increase for 2017 was a whopping 0.3%. So, 2% is a good step forward. Or, it would be if not for projected increases in Medicare premiums.

While Medicare premium numbers won't be out until later this year, it's likely that expected increases will sap most, or all, of the increase to Social Security payments. Many criticize how the SSA views inflation given that the CPI-W doesn't necessarily accurately capture healthcare costs for retirees. Nonetheless and unfortunately, this relationship between SSA's annual COLA process and rising Medicare premiums could be with us for a while.

The IRS announced changes to contribution limits for retirement plans in 2018. Here are some of the highlights:

• $18,500 – Increased from $18,000, this is the maximum an employee can contribute to their 401(k), 403(b), or 457 plans at work. The employer can add more, up to a total between employer and employee of $55,000 (plus catch-up).
• $6,000 – Unchanged, this is the extra catch-up amount those 50 and over can add to their plans at work.
• $5,500 – Unchanged, this is the amount an individual can contribute to a Traditional or Roth IRA each tax year.
• $1,000 – Unchanged, this is the extra catch-up contribution those 50 and over can make to their Traditional or Roth IRA each year.

Most of the so-called "Phase-Outs" did increase. These income ranges relate to how much you can contribute to a Traditional IRA and get a tax deduction or, in the case of a Roth IRA, how much you can contribute at all.

• For single filers, the range is $64,000 - $73,000
• For married couples filing jointly, the range is $101,000 - $121,000
• For spousal contributions to an IRA where one spouse is covered by a plan at work and the other isn't, the range is $189,000 - $199,000
• For Roth IRAs of married couples filing jointly, the phase-out range is $189,000 - $199,000. For single filers it's $120,000 - $135,000.

So, ultimately the 2018 updates from the SSA and IRS are kind of ho-hum in nature, with something being given and something being taken away, or at least not increased. Hopefully, as the economy continues to grow and we see more inflation, these numbers will become more favorable to the retiree and saver.

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