The Social Security Administration (SSA) announced in October (which they do each year) what happens to your Social Security income in 2019. They publish the cost of living adjustments (COLAs), income limits, taxes, etc.
I'll cover all of the changes in this post along with the announced changes to Medicare.
These government programs are two if the most complicated. Social Security, at last count, had over 2,700 rules. There are horror stories of people calling visiting the Social Security offices to get information about their situation. A September 2016 GAO report found that “found that claimants were not consistently provided key information that people may need to make well-informed decisions. For example, in 8 of 26 claims interviews in which the claimant could have received higher monthly benefits by waiting until a later age, the claims specialist did not discuss the advantages and disadvantages of delaying claiming.”
What's my point?
It's important to get yourself educated on how Social Security works. That's the best way to assure you're getting the benefits you deserve.
With that, here are the changes you can expect for 2019.
The Social Security COLA is calculated based on the Consumer Price Index (CPI-W). They measure the increase from the third quarter of the past year to the third quarter of the current year. There is much discussion on whether the CPI-W is the correct measure to use in the calculation. According to the Bureau of Labor Statistics‘ (the agency responsible) website, the CPI-W index is meant to “track retail prices as they affect urban hourly wage earners and clerical workers.” The CPI-W covers around 37% of the workforce.
The CPI-U, on the other hand, is “a more general index. It seeks to track retail prices as they affect all urban consumers.CPI-U encompasses about 87 percent of the United States' population. One of the major criticisms of the CPI-W index used is that it dramatically underestimates healthcare costs. For senior citizens, healthcare represents a much more significant percentage of expenses. Follow this link to the Social Security Administration page on cost of living adjustments.
In 2019, the COLA for those receiving Social Security is 2.8%. The 20108 COLA was 2.0%. That's the most substantial increase since 2011 when it was 3.6%. Below is a chart showing how the 2019 COLAs affect the average income for Social Security recipients:
Of course, the higher salaries receive a higher increase. A benefit increase of $39 may not seem like much. Keep this in mind. From 2012 to 2016, the average COLA was 1.04%. In 2015 there was no increase. In 2016 the increase was 0.3%. The 2.8% COLA represents the average SSA uses to project how inflation impacts benefits in the long-term.
Employers and employees share in the taxes paid into Social Security. The tax rates remain the same in 2019 at 7.65%. As an employee, that's the amount withheld from your paycheck. It's also the amount paid by your employer. The total tax paid by both is 15.30%.
If self-employed, you are paying the 15.30% in total; half as an employer, half as an employee (assuming you take a salary).
However, the 7.65% that's split includes the Medicare tax. The Social Security portion is 6.20% while Medicare is 1.45%. SSA limits the Social Security tax to a maximum income level. In 2018, you paid that tax on the first $128,400 of income. For 2019, that amount goes up to $132,900.
The 1.45% Medicare tax does not have an income limit. In other words, you pay that tax on every dollar you make.
When debating what to do to shore up Social Security, one of the things always discussed is to raise or eliminate the income maximum for Social Security taxes.
For those who claimed their benefits before full retirement age (FRA), and still working, here are the changes in income allowed. SSA calls this the earnings test.
For 2018, you could make $17,040. In 2019, it's $17,640. Again, that's for those claiming benefits before FRA (which is age 66 to 67 depending on DOB). The penalty for earning over those amounts is that SSA withholds $1 out from benefits for every $2 you earn above the $17,640.
Once you reach FRA, the income allowed is $46,920 in 2019, up from $45,360 in 2018. That breaks down to $3,910 monthly. For the months before reaching FRA, SSA withholds $1 for every $3 in earnings above that amount.
To add to the confusion, any benefit amounts reduced get added back once you reach your FRA. The result is a higher benefit than what shows on your MySocialSecurity account. My advice to clients is to wait until at least until you reach FRA to claim. The exception is for those in financial need. With that said, keep in mind that advice is general advice. It's always best to analyze your situation, either with an advisor or with software that helps you do the math.
I told you it was complicated.
Get the facts on the changes with the 2019 Social Security Fact Sheet.
What Are Social Security COLAs and How Are They Calculated?
Is Social Security Really Going Broke?
Making Sense of Social Security Survivor Benefits
The Top Four Reasons to Delay Claiming Social Security Benefits
2019 Medicare changes
Before getting into the changes for 2019, let's start with the basics of Medicare. There are two parts to basic Medicare coverage. Appropriately, they are Part A and Part B.
Part A is hospital insurance and covers things like inpatient hospital care, skilled nursing facilities, surgeries, home health care, and lab tests.
The second coverage. Part B falls under the medically necessary service and preventive medicine categories. Part B also covers doctors and other healthcare providers. It also covers preventative services, in-home health care, and durable medical equipment. It would also cover clinical research, ambulance service, and mental health.
Medicare does not cover things like dental, vision, long-term care, and things like acupuncture, hearing aids, and cosmetic surgery.
Here is a detailed look at What Medicare Covers.
Assuming you've paid Medicare taxes along the way, Medicare Part A is free. I won't get into the exceptions here, but some people may have to pay for Part A.
ABout 70% of people eligible for Medicare pay $134 a month for Part B. For those receiving Social Security, the premium gets deducted from your Social Security check. The remaining 30% pay a higher premium which is income based.
Here are two charts comparing the premiums for 2018 and 2019.
Like many government programs, it is progressive. The higher your income, the higher your premiums.
Below are the changes in Medicare deductibles.
Part D, which covers prescription drugs, also has changes coming for 2019. Rather than get into those details, I'll point you to the Centers for Medicare and Medicaid Services (CMS) and their page where they discuss the Medicare Advantage and Part D changes for 2019.
As you can see, there is a lot to consider when making decisions about Social Security and Medicare. For those already receiving Social Security and on Medicare, I hope you find the information useful. I wanted to get the basics of the changes in the article so you'd have a reference in one place.
Here are some other useful resources you should check out:
Centers for Medicare and Medicaid Services (CMS)
Medicare and You – The Official Government Handbook
Social Security Administration (SSA)
If you're confused about how to figure all of this out (and who isn't), these sites can answer most of your questions. If you need help beyond that, a fee-only advisor can help. You can view my Social Security page to learn more.
Making mistakes in claiming Social Security or errors in enrolling for Medicare can be quite costly. Covering everything is impossible. I hope you find some answers to your questions here.
Now it's your turn. Have you filed for Social Security or Medicare? How was your experience? What tools did you use to help you? Let me know in the comments below.
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