Over 62 million Americans count on Social Security as a major source of their income, including more than 43 million retired workers. The program is critical to financial security for these Americans and that makes annual changes to the program must-know news. Read on to learn about the biggest changes to Social Security next year.
No. 1: The biggest cost-of-living increase in years
In 2018 Social Security checks increased 2% because of Social Security's annual inflation adjustment, and in 2019 recipients will see their Social Security increase by 2.8% -- the biggest increase awarded since 2011 and paid since 2012. Social Security estimates the change will increase the average monthly payment to recipients to $1,461, beginning Dec. 31. It also estimates the average married couple will receive $2,448 per month next year if both people are receiving benefits.
No. 2: Maximum Social Security increases
Workers with high incomes over their career could bring home more in Social Security if they retire in 2019. The maximum Social Security payable to retiring workers is increasing regardless of whether you retire at age 62, 65, or 70. The following table shows the year-over-year change to the maximum payable in Social Security, but don't get too excited. Qualifying for these maximums requires a lifetime of earnings at the maximum income that's taxable.
|Maximum Social Security If You Retire in 2019|
Data source: Social Security Administration.
No. 3: The tax man cometh
Payments to current Social Security recipients are funded primarily by payroll taxes on current workers' income, and in 2019 maximum taxable earnings will increase to $132,900 from $128,400 in 2018. That's a 3.5% increase. The bright side? The tax rate itself isn't changing. It will remain 12.4%, split equally between employee and employer.
No. 4: Normal retirement age increases by two months
You can only collect 100% of your Social Security benefits if you wait to claim until normal retirement age, which is also called full retirement age.
Retire earlier than that point and your Social Security benefit will be reduced based on the number of months early you begin drawing your benefits.
Your full retirement age depends on the year in which you're born. For people born after 1954, it increases by two months every year to age 67 from age 66. In 2018, full retirement age was 66 and four months, so it will be 66 years and six months for people turning 62 in 2019.
No. 5: You can earn 3.5% more in 2019 without a reduction
If you're collecting Social Security and you're younger than full retirement age, then Social Security limits how much money you can earn without triggering a reduction. In 2019, the earnings test limit increases to $17,640 from $17,040 in 2018. If your income exceeds the limit, then Social Security will withhold $1 for every $2 you earn above it from your Social Security checks.
However, a separate rule applies if you're turning full retirement age in 2019. You'll be able to earn up to $46,920 in the months prior to turning normal retirement age, but if you earn more than that, then Social Security will withhold $1 for every $3 above the limit. In 2018, the limit is $45,360.
Don't worry, though. Any money withheld because of the earnings test will increase the benefit you receive when you attain full retirement age. And, if you've already reached full retirement age, you're no longer subject to this test.
No 6: Social Security's bend points increase
To calculate the benefit you'll receive at full retirement age, Social Security adjusts your highest 35 years of income for inflation and then calculates your average monthly income over those years. Then, it reduces that amount at specific income levels called bend points. The amount of the reduction to average inflation-adjusted monthly earnings (AIME) is a fixed percentage, but the income points change annually. In 2019, the first bend point is $926, up from $895 in 2018, and the second bend point is $5,583, up from $5,397 in 2018. The following table shows you how much credit you'll get for AIME up to and beyond each bend point.
|Fixed Percentages of Income Used in Bend Points Calculation|
|Up to First Bend Point||Between First and Second Bend Point||Above Second Bend Point|
No. 7: The inflation-adjustment for Social Security's calculation increases
As I just mentioned, Social Security adjusts your historical income for inflation. It does this by using its national average wage index, or AWI, with a two-year lag. In 2017, the average wage was $48,251.57, which is 3.45% higher than $46,640.94 in 2016. Social Security multiplies the 2017 average wage by the 2016 AWI, which was $48,642.15. Then, it divides that figure by the 2016 average to arrive at an AWI of $50,321.89 for 2017.
For people turning 62 in 2019, Social Security multiplies earnings in years prior to 2017 by the ratio of $50,321.89 to the AWI for each respective year. For instance, $50,321.89 divided by 2016's AWI $48,642.15 is 1.0345, so your earnings in 2016 will be multiplied by 1.0345 to adjust them for inflation.
If this calculation makes your eyes glaze over, don't worry. Social Security does all this math automatically for you when it determines your full retirement benefit.
No. 8: Medicare Part B gets more expensive
In addition to these big changes to Social Security in 2019, you should also know that Medicare Part B monthly premiums are increasing to $135.50 in 2019 from $134 in 2018. If you're already paying $134 monthly this year, then your Social Security increase will more than offset the Part B increase. However, if you're paying less this year because of hold harmless, a provision that's kept Part B premiums from increasing in dollar amounts by more than Social Security checks in the past, then you could see most or even all of your Social Security increase go to Medicare premiums.