Social Security is a major source of income to more than 62 million Americans, including over 43 million retired workers. The program is critical for these Americans and their financial security, therefore, being aware of annual changes is must-know information.
- There will be the largest cost of living increase in years. In 2018, Social Security checks increased by 2 percent because of the annual inflation adjustment. In 2019, the increase will be 2.8 percent – the largest increased awarded in 2011 and paid in 2012. It is estimated that the change will increase the average monthly payment to recipients to $1,461, beginning on Dec. 31, 2018. It is also estimated that the average married couple will receive $2,448 a month if both people are receiving benefits.
- The maximum Social Security payable to retiring workers is increasing. It does not matter if people retire at 62, 65, or 70. Workers with high incomes throughout their careers could bring home more in Social Security if they retire in 2019. Qualifying for these maximums requires a lifetime of earnings at the maximum income that is taxable.
- Primarily, payments made to Social Security recipients are funded by payroll taxes on people who are currently working. In 2019, maximum taxable earnings will increase to $132,900 from $128,400 in 2018. That is a 3.5 percent increase. That tax rate itself is not changing. It will stay at 12.4 percent, split equally between employee and employer.
- A person can only collect 100 percent of his Social Security benefits if he waits to claim until normal retirement age, or full retirement age. Retire early and the Social Security benefits will be reduced based on the number of months benefits are drawn. Full retirement age depends on the year of a person’s birth. For those born after 1954, it increases 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 those turning 62 in 2019.
- One can earn 3.5 percent more in 2019, without a reduction. For those collecting Social Security, who are younger than retirement age, Social Security limits how much money one can earn without triggering a reduction. In 2019, the earnings test limit will increase to $17,640 from 17,040 in 2018. If the income exceeds the limit, then Social Security will withhold $1 for every $2 earned above the Social Security checks. However, for those coming to retirement age in 2019, they will be able to earn up to $46,920 in the months before turning full retirement age. If one earns more than that, Social Security will withhold $1 for every $3 above the limit. In 2018, that limit was $45,360. Money withheld due to the earnings test will increase the benefit received when full retirement age is attained. For those who have already reached full retirement age, the test does not apply.
- To calculate the benefits received at full retirement age, Social Security adjusts the highest 35 years of income for inflation and calculates the average monthly income over those years. Then, Social Security reduces that amount at specific income levels called bend points. The amount of reduction to average inflation-adjusted monthly earnings (AIME) is a fixed percentage. The income points change yearly. In 2019, the first bend point is $926, up from $895 in 2018.n The second bend point is $5,583, up from $5,397 in 2018.
- Social Security adjust the historical income for inflation. This is done by using the national average wage index (AWI), with a two-year lag. In 2017, the average wage was $48,251.57, which is 3.45 percent higher than $46,640.94 in 2016. Social Security multiplies the 2017 average wage by the 2016 AWI, which was $48,642.15. Then, that figure is divided by the 2016 average for an AWI of $50,321.89 for 2017. For those turning 62 in 2019, Social Security multiplies earning in the years before 2017 by the ratio of $50,321.89 to the AWI for each respective year. For example, $50,321.89 divided by 2016’s AWI, $48,642.15 is 1.0345, so the earnings in 2016 would be multiplied by 1.0345 to adjust for inflation.
- Medicare Part B will be more expensive. Medicare Part B monthly premiums will be increasing to $135.50 in 2019, up from $134 in 2018.
By Jeanette Smith
The Motley Fool: Here Are the 8 Biggest Changes to Social Security in 2019
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