It has been my custom for most of the past 21 years to write a year-end column that summarizes the Social Security changes and updates scheduled to take place the following year.
Almost all Social Security beneficiaries are familiar with the most popular and publicized upcoming change: the increase in monthly benefit checks for 2019 due to the automated cost-of-living adjustment, or COLA. In fact, Social Security recipients have probably already received a letter from the Social Security Administration telling them of the expected increase. My wife and I got our notices.
All Social Security checks are going up 2.8 percent in 2019. The COLA is based on something called the Consumer Price Index for Urban Wage Earners and Clerical Workers. This is the official measuring stick the SSA has used to determine COLAs for the past 45 years. If you want to learn more about this measure, check out the website of the folks who maintain it: the Bureau of Labor Statistics. You’ll find them at www.bls.gov.
I always dread mentioning COLAs in this column because every single time I do, I am flooded with emails from readers complaining that the increase is not enough. (Maybe not unexpectedly, not once in 21 years has anyone written to say their COLA increase was too high!)
Yet here’s the rub: Many economists and social planners believe Social Security COLAs are too generous! (I’ve explained why in past columns, but don’t have the space to get into that argument today.) That’s why most discussions of long-range reform for Social Security include proposals to reduce cost-of-living increases.
Due to these increases, the average monthly retirement check will be $1,461 in 2019, a $39 increase from the 2018 level. The maximum Social Security check for a worker retiring at age 66 next year will be $2,861, compared to $2,788 in 2018. And please note that $2,861 is the maximum for someone turning 66 next year. That does not mean it is the maximum Social Security payment anyone can receive. There are millions of Social Security beneficiaries who get much more than that, primarily because they work well past age 66, and/or delay starting their benefits until age 70.
Although this is a Social Security column, I must mention the upcoming increase in the Medicare Part B premium, which is deducted from Social Security checks for most people. In 2019, the basic Part B premium will be $135.50, a $1.50 increase from the 2018 rate. A few people will pay less than that because of the muddled mess involving the so-called hold-harmless provisions of the law that I’ve discussed many times. And wealthy people will pay more than the basic premium — as much as $460.50 per month for the richest Americans.
I will take the time to make this quick point. Though linked in the minds of most senior citizens, Social Security and Medicare are separate programs, administered by separate federal agencies, and they have separate rules and regulations regarding their benefit and payment structures. For example, unlike Social Security COLAs, Part B Medicare premium increases have nothing to do with the CPI. Instead, they must be set at a level that covers 25 percent of the cost of running the program.
Another measuring stick, the national wage index, is used to set increases to other provisions of the law that affect Social Security beneficiaries and taxpayers. Specifically, this includes increases in the amount of wages or self-employment income subject to Social Security tax, the amount of income needed to earn a quarter of coverage, and the Social Security earnings penalty limits.
The Social Security taxable earnings base will go up from $128,400 this year to $132,900 in 2019. In other words, people who earn more than $132,900 next year will no longer have Social Security payroll taxes deducted from their paychecks once they hit that threshold. This has always been a controversial provision of the law. (Bill Gates pays the same amount of Social Security tax as his plumber!) Normally, I would bet my next pension check that any eventual Social Security reform package will include a sharp increase in that wage base. But with the anti-tax Republicans controlling the Senate and the White House, I’m not so sure.
Most people need 40 Social Security work credits (sometimes called “quarters of coverage”) to be eligible for monthly benefit checks from the system. In 2018, people who were working earned one credit for each $1,320 in Social Security taxable income. But no one earns more than four credits per year. In other words, once you made $5,280, your Social Security record has been credited with the maximum four credits or quarters of coverage. Next year, the one credit limit goes up to $1,360, meaning you will have to earn $5,440 in 2019 before you get the maximum four credits assigned to your Social Security account.
People under age 66 who get Social Security retirement or survivor’s benefits but who are still working are subject to limits in the amount of money they can earn and still receive all their Social Security checks. That limit was $17,040 this year and will be $17,640 in 2019. For every two dollars a person earns over those limits, one dollar is withheld from his or her monthly benefits.
There is a higher earnings threshold in the year a person turns 66 that applies from the beginning of the year until the month the person turns 66. (The income penalty goes away once a person reaches that “full retirement age.”) That threshold goes up from $45,360 in 2018 to $46,920 next year.
A couple other Social Security provisions are also impacted by inflationary increases. For example, people getting disability benefits who try to work can generally continue getting those benefits as long as they are not working at a “substantial” level. In 2018, the law defined substantial work as any job paying $1,180 or more per month. Next year, that substantial earnings level increases to $1,220 monthly.
Finally, the Supplemental Security Income basic federal payment level for one person goes up from $750 this year to $771 in 2019. SSI is a federal welfare program administered by SSA, but it is not a Social Security benefit. It is paid for out of general revenues, not Social Security taxes.