Social Security benefits undergo an update every year based on inflation and changes to the Consumer Price Index. Usually, the benefits increase, however, in the event of deflation (which is an increase in the value of currency), then it is possible for benefits to reduce. The Social Security Administration (SSA) is responsible for calculating these changes and releasing an update to advise people on anticipated changes.
The Adjustment Formula
The SSA calculates the changes to Social Security benefits (both disability and insurance) based on changes in the Consumer Price Index (CPI). The CPI is a measurement guide that is used to estimate the average cost to live in the United States. The CPI is based on a collection of “baskets” which represent essential goods and services (excluding food due to its notorious price fluctuation). The CPI is a bedrock formula and calculation that has underpinned many government policies for the past 60 years; it is considered reliable.
Taxes Collected
Social Security and Medicare are funded through dedicated taxes. These tax rates, from 2016 to 2017 remain unchanged. The combined rate (Social Security and Medicare) is 7.65 percent for employees and 15.30 percent for self-employed persons (small business owners, 1099 contract workers, and similar work). As of 2013, individuals earning over $200,000 ($250,000 for married filing jointly taxpayers) pay an additional 0.9 percent in Medicare taxes.
Congress enacted an income limit on income subject to Social Security taxes. In 2017, the limit was raised $8,700 to $127,200. Thus, income earned above this amount is exempt from Social Security taxes. However, there is no income ceiling on Medicare taxes (including the 0.9 percent increase on high-earners).
Changes to Benefits
The maximum benefits an individual can receive, assuming they retired at full retirement age, it $2,687 a month, an increase of $48. The SSI federal payment standard rose two dollars for individuals to $735 a month and three dollars for couples to $1,103 a month.
Additionally, the SSI student exclusion was slightly raised to $1,790 a month from $1,780 and to $7,200 a year from $7,180. Finally, the SSI resources limit is unchanged at $2,000 for individuals and $3,000 for couples.
There are minimal changes to Social Security Disability (SSD) benefits. For non-blind substantial gainful activity, the amount was raised $40 a month to $1,170 and $120 for the blind to $1,950 a month. Finally, the trial work period was increased from $840 a month from $810 a month.