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Social Security COLAs for 2008 December 3, 2007 By Scott Whittemore Like the annual cost-of-living adjustments (COLAs) announced by the IRS, the Social Security Administration each October provides an excellent opportunity for you to talk to clients about the need to factor inflation adjustments into their retirement plans. Social Security checks are going up by just 2.3% in January, an increase that may not cover clients' own individual inflation. This increase is based on the usual COLA formula, which uses the CPI-W index to determine the rate of price increases from October to October each year. Clients receiving the maximum benefit will have $69 more to spend every month as their check goes up to $2,185 from $2,116. Remind clients that these COLAs apply to delayed retirement credits as well. If they delay applying for Social Security benefits past their normal retirement age (up to age 70), their benefits will include COLAs that are calculated on ever-higher amounts. Ms. Kathy Casey-Kirschling, the first baby boomer to apply for Social Security benefits starting at age 62, may have made a big mistake by not waiting. Here COLAs are applied to an amount that is 25% less than the full retirement benefit and will stay that way for the rest of her life. Regardless of where your clients stand with regard to Social Security, take this opportunity to talk with them about their retirement income needs and the importance of factoring inflation into the plan. Talk to them about their own spending experiences, and ask them if a 2.3% raise would cover their own cost-of-living increases. Probably not. Social Security recipients who have not yet reached normal retirement age and who work can earn a bit more in 2008 before having part of their benefits withheld. During the years prior to the year they reach full retirement age, they can earn up to $13,560 per year ($1,130 per month), up from $12,960 per year ($1,080 per month), without their benefits being affected. If they earn more than that amount (called the retirement earnings test-exempt amount), $1 in benefits will be withheld for every $2 they earn above the limit. Once they enter the year in which they will reach full retirement age, the earnings test-exempt amount rises to $36,120 per year ($3,010 per month), up from $34,440 per year. During this period $1 in benefits will be withheld for every $3 earned over the exempt amount. Once a Social Security recipient reaches full retirement age, there is no reduction in benefits regardless of earnings. Table 2: Social Security Changes 2008 2007 Maximum Social Security Benefit: Worker Retiring at Full Retirement Age. $2,185/mo. $2,116/mo. Retirement Earnings Test-Exempt Amounts Under full retirement age. One dollar in benefits will be withheld for every $2 in earnings above the limit. $13,560/yr. ($1,130/mo.) $12,960/yr. ($1,080/mo.) The year an individual reaches full retirement age. Applies only to earnings for months prior to attaining full retirement age. One dollar in benefits will be withheld for every $3 in earnings above the limit. $36,120/yr. ($3,010/mo.) $34,440/yr. ($2,870/mo.) Tax Rates Social Security wage base (OASDI only; no limit for Medicare) $102,000 $97,500 Social Security tax rate (employee) applied to wage base. 6.20% 6.20% Medicare tax rate applied to all earnings. 1.45% 1.45% Social Security tax rate (self-employed) applied to wage base. 12.40% 12.40%

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