Social Security provides income in retirement to over 43 million retired workers, and next year there are some important changes to the program that everyone ought to know about. Here are seven key Social Security facts that may impact you in 2019.
No. 1: A bigger payment
Social Security payments will increase by 2.8% in 2019, and that's the biggest increase to Social Security income since 2012. This cost-of-living adjustment (COLA) was determined by computing the change in prices for goods and services in the third quarter of 2018 from the third quarter of 2017, using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This year, it averaged 246.352 in the third quarter, and in 2017 it averaged 239.668 in the third quarter, which works out to a 2.8% increase.
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Following the COLA increase, the average monthly Social Security received by a retired worker will be $1,461, up $39.64 per month from 2018. The average married couple will receive $2,448 per month in 2019, if both people are drawing benefits. However, it's unlikely you'll receive that amount because Social Security calculates each retiree's payment based on their own individual earnings history, not an average of all workers.
No. 2: Taxes are increasing, too
Social Security payments are funded through a 12.4% payroll tax on current workers, split equally between employer and employee, up to a maximum amount of earnings annually. Unfortunately, this figure can also increase, and the amount it increases every year is determined by changes in Social Security's average wage index, not CPI-W. Because this index grew 3.45%, the maximum earnings subject to payroll taxes will increase 3.5% (they round up) to $132,900 in 2019.
No. 3: Full retirement age is climbing
Full retirement age is the age at which a retired worker can collect 100% of their Social Security benefit. Claim earlier than full retirement age and your benefit is reduced; claim later and it's increased. In 2019, full retirement age is 66 years and six months for people born in 1957, which is two months older than in 2018. If you were born in 1957 and you claim benefits early at age 62, you'll receive 27.5% less than if you had otherwise waited to claim until full retirement age. Alternatively, someone born in 1957 who waits until age 70 to claim benefits will receive 28% more than they'd receive at full retirement age.
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No. 4: Workers will get a break
If you're younger than full retirement age, collecting Social Security, and still working, then you're subject to Social Security's earnings test. In 2019, the maximum amount you can earn without failing this test will increase 3.5% to $17,640. If you earn more than that, Social Security will withhold $1 for every $2 you earn above that limit.
A separate rule applies to people who are turning full retirement age in 2019, though. People who reach full retirement age in 2019 can now earn up to $46,920 in the months prior to turning full retirement age, up from $45,360 in 2018. If your earnings exceed this new limit, then Social Security will withhold $1 for every $3 above the limit.
If you do fail the earnings test, any Social Security that's withheld won't be lost. Instead, it's added back to your work record, so any withholding increases the amount you receive in benefits once you attain your full retirement age.
No 5: Changes to the benefit calculation
Social Security calculates your full retirement age benefit by adjusting your highest 35 years of earnings for inflation to determine your average inflation-adjusted monthly earnings (AIME). Then it subjects your AIME to bend points that only give you credit for earnings up to specific thresholds.
In 2019, the first bend point is increasing to $926 from $895 in 2018, and the second bend point is increasing to $5,583 from $5,397 in 2018. In the following table, you can see how much credit you'll get for your AIME up to and beyond each bend point. So, for example, if your AIME is $5,700, then your full retirement age benefit would be $2,341.19.
Fixed Percentages of Income Used in Bend Points Calculation in 2019
Up to $926
Between $926 and $5,583
Chart by author.
No. 7: Medicare Part B premiums increase
In 2019, Medicare Part B monthly premiums are increasing to $135.50 from $134 in 2018. Most Americans pay this premium out of their Social Security income, therefore the increase will reduce how much of the Social Security COLA increase you pocket next year -- especially if you're paying less than $134 in 2018 because of Social Security's hold harmless provision. That provision has prevented premiums from increasing in dollar amounts faster than Social Security income in past years, but it's only a temporary reprieve. As Social Security income increases, Medicare Part B members are required to play catch-up. Therefore, some people could see a lot of their Social Security increase go to Medicare, rather than their bank account.
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