2019 Social Security and Medicare changes

by Roger Shake, CFP®, RLP®, CeFT® 

The new year brings with it changes to how much retirees will receive from Social Security and how much more some higher-income workers will contribute in payroll taxes toward their future benefits. Most Medicare beneficiaries will pay slightly more for their health-care premiums in 2019 than last year and some very high-income beneficiaries may be surprised by how much extra they will pay for Medicare in 2019. Here is a handy fact sheet of key numbers that will affect retirees’ benefits and expenses this year.

Retirees get a big raise

Retirees will get a 2.8% increase in their Social Security retirement benefits in 2019, the biggest cost-of-living adjustment in seven years. The average retirement benefit will increase by $39, to $1,461 per month; and the average retired couple will receive a $67 raise, to $2,448 per month. The maximum monthly Social Security benefit for lifelong high earners who begin collecting benefits at full retirement age this year will rise by $73 per month, to $2,861.

Small boost in Medicare premiums

The big news for most retirees is that their Medicare Part B premiums, which pay for doctors’ visits and outpatient services, will increase only slightly in 2019. Most of Medicare’s 60 million beneficiaries will pay $135.50 per month, up $1.50 from last year. That means the increase in net Social Security benefits — after deducting Medicare premiums — will be significant in 2019 compared to last year, when a big jump in Medicare premiums wiped out most of the 2018 Social Security COLA.

Medicare surcharge changes

About 3 million high-income retirees, defined as individuals with modified adjusted gross income (MAGI) exceeding $85,000 and married couples with MAGI topping $170,000, will pay more for both Medicare Part B and Part D prescription drug plan premiums in 2019. MAGI is AGI plus tax-exempt interest.Medicare Part B monthly premiums plus surcharges range from $189.60 to $460.50 per person per month. Although the surcharges are only slightly higher than last year, a new top tier was added in 2019 for very high-income retirees. It applies to individuals with MAGI over $500,000 and married couples whose MAGI tops $750,000. This year’s Medicare surcharges are based on 2017 tax returns.

Higher taxes for high-income workers

While income taxes may be going down because of the new tax law, payroll taxes are not. The maximum wages subject to payroll or FICA taxes, which fund Social Security benefits, increase by $4,500 this year. Employers and employees each pay 7.65% of the first $132,900 of wages in 2019. That means high-income workers will pay an additional $344.25 in payroll taxes this year. All wages, including those above the $132,900 cap, are subject to the 1.45% portion of the tax that funds Medicare. Plus, individuals with earned income above $200,000 and married couples with earned income topping $250,000 will pay an additional high-income surcharge of 0.9% in Medicare taxes in 2019.

Early retirees can earn more

Individuals who claim Social Security benefits before their full retirement age and who continue to work are subject to earnings restrictions that can temporarily reduce or eliminate their benefits. In 2019, retirees younger than 66 can earn up to $17,640 before losing any benefits, $600 more than last year. After that, they would forfeit $1 in benefits for every $2 earned over the limit.Those who turn 66 in 2019 can earn up to $46,920 in the months preceding their birthday without jeopardizing any benefits, up $1,560 from last year. They would lose $1 in benefits for every $3 earned over that limit. The earnings cap disappears once they reach full retirement age — meaning they can earn any amount without forfeiting benefits. Any benefits lost to the earnings cap are restored in the form of higher monthly benefits at full retirement age.

The retirement age is rising

The current full retirement age of 66 is increasing for workers born after 1954 and that means the reduction for claiming benefits early is also on the rise. For individuals born in 1957 who become eligible for Social Security when they turn 62 this year, their full retirement age is 66 and 6 months. They can still claim Social Security as early as age 62, but their benefits would be reduced by 27.5%, compared to a 25% reduction for those with a full retirement age of 66 who claim at 62.

Qualifying for benefits costs more

The cost of the credits that a worker needs to qualify for Social Security benefits and Medicare coverage is going up. To be eligible for Social Security and Medicare, you must earn at least 40 Social Security credits with a maximum of four credits per year. In 2019, each credit represents $1,360 in earnings, up $40 from last year. That means, an individual must earn at least $5,440 in 2019 to qualify for the maximum four credits, compared to $5,280 in 2018.

Social Security benefits remain taxable

Despite all the talk about lower income taxes as Americans work on their 2018 tax returns in the coming months, Social Security benefits are still taxed the same way, based on combined income, which includes a taxpayer’s adjusted gross income, plus tax-exempt interest and half of their Social Security benefits.Individuals whose combined income is between $25,000 and $34,000 pay income taxes on up to half of their benefits. Once their combined income tops $34,000, they pay income taxes on up to 85% of their benefits. Married couples with combined incomes between $32,000 and $44,000 pay taxes on up to 50% of their Social Security benefits. Once their income tops $44,000, they pay taxes on up to 85% of their benefits.

What does this mean for me?

Legacy Legacy Consulting Group is uniquely qualified and experienced in helping pre-retirees and retirees sort through and coordinate their Social Security, 401(k), IRA, Pension and Investment assets within the framework of Financial Life Planning. This planning approach provides the opportunity for our clients to live secure and inspired lives. Let’s start a conversation about what is meaningful about money and life to you. We can be reached at (972) 599-4750.  *Article research courtesy of Mary Beth Franklin