Wednesday, October 31, 2018

Social Security Changes in 2019

Every year, the Social Security Administration makes a few changes to the program. The changes are intended to help retirees keep pace with inflation while, at the same time, maintaining the program's solvency.  It can be a difficult balancing act which does not always achieve its goals.

In 2019, beneficiaries can expect to get the largest cost-of-living increase in several years, which is wonderful news for the millions of people who depend on Social Security to cover all or most of their living expenses.  Even better, the cost-of-living increase should not get eaten up by an increase in Medicare premiums, which has happened in the past. However, this is not the only change we can expect to see in 2019.  Below is a list of some of the most significant changes to Social Security in 2019.

Largest Social Security Increase in Years

For many people, the most significant important change will be the 2.8 percent cost-of-living increase.  This means the average monthly payment will rise to $1,461 and the average married couple with receive $2,448 per month, if both of them receive benefits.  For those of you who have not begun to collect, this gives you an idea of what to expect.  For those who are already collecting, this will help you determine how your benefits compare with those of other recipients.

A Small Increase in Medicare Part B Premiums

In 2018, the Social Security COLA was so small that it was entirely eaten up by the increase in Medicare premiums for many beneficiaries.  Next year, the increase in Medicare Part B premiums is so small that things should be much better for most people.  The premiums are going to increase to $135.50 in 2019 from $134 in 2018.  This $1.50 increase in premiums is unlikely to have a negative impact on many Social Security beneficiaries.

However, there were some people whose Medicare premiums were less than $134 in 2018 because
they did not get a large enough raise last year to cover their increase in Medicare premium.  For those people, their Medicare premium this year could be greater than $1.50 and, therefore, might take all or most of their Social Security increase.

You could also have a large increase in your Medicare premiums for another reason, and that is if your income went up significantly last year.  Sudden increases in retirement income, because of an unusually large IRA withdrawal or windfall, can cause your Medicare premiums to increase dramatically and retirees should consult their tax attorney and take into consideration all of the financial consequences of a large IRA withdrawal or income increase. However, the Medicare premium increase should only apply to the year following the increase in income, unless it is permanent or continues for several years. This will only apply, however, to people who have a very large increase in their retirement income.

An Increase in the Maximum Social Security Benefit

If you have been fortunate enough to earn a high income during the 35 best years of your working career, the maximum amount of Social Security you could receive in benefits has increased.  For those people at the top of the income range who retire at age 62, they could receive up to $2,209 a month; at age 65 they could receive up to $2,757; and at age 70 they could receive up to $3,770.

Workers will Have Slightly More Income Subject to Taxation

If you are still working, you will see a small increase in the amount of your income which will be, subject to Social Security taxes.  The 2019 maximum taxable earnings will rise from $128,400 to $132,900.  Workers will be pleased to know that the tax rate itself will not change from its current rate of 12.4 percent, split evenly between employee and employer.

Normal Retirement Age will Increase by Two Months

Workers who want to collect their full Social Security benefits will need to work two months longer.  If you are turning 62 in 2019, your full retirement age will be age 66 years and six months.

You Can Earn More if You Work while Collecting Social Security

Many people find they need to continue to work and earn extra income, even after they begin to collect their Social Security benefits.  If you are under your full retirement age, collecting Social Security and working at the same time, the amount you can earn without having your benefits reduced will rise from $17,040 to $17,640.  You can earn more than that, but if you do, the Social Security Administration will withhold $1 for every $2 you earn above the $17,640 limit.

You should also know that if you reach your full retirement age in 2019 and earn over $46,920 in the months leading up to your retirement, Social Security will withhold $1 for every $3 you earn in excess of $46,920, but just for that one year.

Once you reach full retirement age, you can earn as much as you want without having your benefits reduced.  Today, we are seeing many people continue to work, either in their previous career or in a new career, for years after reaching full retirement age.

New Calculations for Your Social Security Benefits

Without going into complicated mathematical calculations, the government is making a few slight tweaks to how they calculate your past earnings, inflation adjusted.  These numbers are used to determine how much people will receive in benefits when they claim their Social Security, so the changes will benefit people who have not yet begun to collect.

Be Aware of More Changes Which Could be Coming

After the election, it is likely that Social Security and Medicare could be put on the cutting block by Congress.  Because of the 2018 income tax changes, government revenues have dropped dramatically and the deficit is increasing rapidly.  Some factions in Congress are proposing dramatic changes to these two programs which could result in cuts to both Social Security and Medicare.

Some of the changes could be very subtle.  For example, there is a faction which wants to change the way future cost-of-living increases are calculated, by using a different CPI or Consumer Price Index.  Currently, they use a CPI-W, which estimates the cost of living for a typical worker.  Some groups would like the government to use a CPI-E, which considers the cost of items typically used by the elderly, such as healthcare.  This would increase the size of future cost-of-living increases.

Unfortunately, a large group in Congress have stated they want to go with a Chained-CPI, which would be devastating for many senior citizens because they would only get extremely tiny increases, or none at all, because this CPI calculation assumes the elderly will just keep cutting down on what they pay for things by purchasing cheaper items.  Since many elderly already are living on very tight budgets, the possibility of the government using a Chained-CPI is very alarming for many senior citizens.

All older Americans, whether they are retired or not, should follow the debate over Social Security carefully, because it will affect nearly everyone in the nation.  Even if you have a private pension or you are wealthy, it is likely that some people in your family will be affected by changes to Social Security.  You can learn more about the changes being discussed at the website for The National Committee to Preserve Social Security and Medicare.

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