The US Social Security Administration recently announced that beneficiaries – including retirees, disabled workers and their eligible dependents and surviving family members – will receive a 2.8% increase in their benefits in 2019. This will be the largest annual inflation adjustment since 2012.
The cost of living adjustment (or COLA) for 2018 was 2.0%, and for 2017, 0.3%. There was no inflation adjustment for benefits in 2016.
The 2.8% COLA will raise the average Social Security benefit by $39 per month to $1,461 per month, and the maximum benefit for someone retiring at Full Retirement Age (or FRA) by approximately $73 per month to $2,861 per month.
Delayed or Early Retirement
The average and maximum benefits do not include so-called “delayed retirement credits”. Social Security recipients who delay taking claiming benefits beyond their FRA can see their monthly benefit increased by 8% per year for each year they wait to claim up to age 70. Those recipients who decide to claim benefits prior to their FRA have their payments reduced for the rest of their life.
Benefits and Earned Income
The COLA also affects the amount that Social Security recipients who claim benefits before their FRA can earn from working without forfeiting benefits, as well as the amount of payroll taxes that high income workers will be subject to in 2019.
The earnings limit for individuals claiming Social Security benefits before their FRA is increased to $17,640 for 2019, from $17,040 for 2018. Individuals who are younger than their FRA will lose $1 in benefits for every $2 earned over $17,640 in 2019.
A higher earnings limit applies in the year a beneficiary reaches full retirement age. In the months preceding his or her 66th birthday, individuals can earn up to $46,920 in 2019, up from $45,360 this year. Individuals would forfeit $1 in benefits for every $3 earned over that limit in 2019.
The earnings restrictions disappear at FRA, which means that an individual can earn any amount of money without sacrificing benefits once he or she turns 66. Benefits lost to the earnings cap are restored at FRA in the form of higher monthly benefits.
The Social Security and Medicare Taxable Wage Base
For 2019, the maximum wage base subject to FICA taxes that fund Social Security and Medicare will increase by $4,500 to $132,900. Employers and employees each pay 7.65% of their gross wages up to the maximum taxable wage base. Self-employed individuals pay the combined employer/employee rate of 15.3%.
All earnings – even those above next year’s $132,900 maximum wage – are subject to the 1.45% portion of the FICA tax that funds Medicare. In addition, individuals with earned income of more than $200,000 (or $250,000 for married couples filing jointly) pay an additional 0.9% in Medicare taxes.
Many retirees should see a real increase in their net Social Security benefits in 2019, unlike this year, when the 2% COLA for Social Security benefits was canceled out by a $25 increase in monthly Medicare premiums. Premiums for Medicare Part B, which covers doctors’ fees and outpatient services, are usually deducted directly from monthly Social Security benefits.
The latest Medicare Trustees’ report projects that basic Medicare Part B premiums will increase by about $1.50 a month, to $135.50, in 2019. The official Medicare premiums will be announced in the fall. High income retirees pay more for the same Medicare coverage.
Individuals with modified adjusted gross income (or MAGI) of $85,000 or more and married couples whose joint income exceeds $170,000 pay a high income surcharge on both their Medicare Part B premiums and Part D prescription drug plans. The surcharge, officially known as an income-related monthly adjustment amount, or IRMAA, is based on the last available income tax return. Premium surcharges for 2019, which will be announced in December, will be based on 2017 income.
Content courtesy of Mary Beth Franklin
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