To mangle a Twainism: The reports of Social Security’s demise are greatly exaggerated. Social Security benefits, which provide critical income for nearly 63 million retired or disabled workers, along with their dependents and survivors, will continue to be paid for the foreseeable future.
But to mangle someone else’s words — possibly Kool & the Gang — nothing stays the same. And the year ahead bring with it several changes to Social Security rules and benefits.
A Quick Calculation
Long lamented as tricky to plan for and compute, the simplified explanation of how Social Security benefits are calculated is that they’re based on an individual’s income during the highest-paid 35 years of his or her worklife. A person who has worked fewer than 35 years will have $0 averaged in for each year without earned income. As for the monthly benefit amount, it differs depending on the age at which the person first files to receive it — anywhere from age 62 to age 70; the longer the payments are delayed, the higher the benefit amount paid. There is also a maximum amount in retirement benefits that seniors can collect; in 2018, that was capped at a high of $2,788 per month.
The brave or curious who have not yet claimed benefits but are interested in learning the amount of retirement benefits to which they may be entitled can use Social Security’s online tool, the Retirement Estimator. A few words of warning, or confirmation for those already claiming them: It’s tough to live on Social Security benefits alone. For most retirees, the benefit amounts to only about 40% of what they earned when working — and most retirees say they need about 75% of their former incomes to make ends meet.
Where We Are Now
First, a few basic facts about the current payouts in the Social Security program: Comprising the pie of all benefits paid, just over two-thirds, or 68%, are paid to retired workers, 14% go to workers with disabilities, 10% to survivors of deceased workers, and 8% to spouses and children of retired or disabled workers.
Social Security benefits are especially essential lifelines for people of color who have historically had lower lifetime earnings than white workers. The most recent statistics available for the percent of beneficiaries 65 and older who depend on Social Security for 90% or more of their income revealed the following breakdown in race and ethnicity:
- Hispanic 52%
- African American 45%
- Asian 41%
- White 32%
Another category of beneficiaries — women — also historically and currently paid less than their male co-workers, are changing the payment patterns in the program. In the last 40 years, as more women have entered the workforce, they qualify for benefits based on their own earnings rather than as a spouse or dependent. Women age 62 and older now account for 56% of the Social Security retirement benefits paid out, and 66% of the beneficiaries age 85 and older are women. Women also have longer lifespans than men, so their impact on the program is particularly profound. In fact, in recognition of the role of the gentler sex, the Social Security Administration recently dedicated a portal on its website to “Social Security for Women” — which, rather incongruously, includes a link to “The Top Baby Names for the Last 100 Years.”
Changes in Store for 2019
The year ahead will bring with it a number of changes to Social Security.
Cost of Living Increase. One usual yearly change in benefits is decreed by law: federal benefits increase when the cost of living rises, based on increases to the average costs of consumer goods and services as determined by the U.S. Department of Labor. The added dollars, known as the Cost of Living Adjustment (COLA), are a sort of raise intended to help people keep up with the times. Beginning in January 2019, Social Security beneficiaries will get a COLA of 2.8%.
That news will come to recipients the old-fashioned way: by U.S. mail — though in future years, beneficiaries will be able to indicate whether they prefer to get COLA notices by mail or online.
While the additional dollars are welcome, the truth is they won’t feel like a windfall — more like a wind stumble. The Social Security Administration estimates that the average benefit paid to retired workers will increase from $1,422 in 2018 to $1,461 in 2019 — a bump up of $39 a month, or $468 a year.
Critics note that that one day after the government announced the COLA increase, it also announced a slight increase in the monthly premiums for Part B Medicare insurance, which covers doctor and diagnostic services, outpatient hospital services, certain home health services and durable medical equipment. Because that premium payment is deducted from Social Security, many people will see the extra COLA dollars eaten up by increased premium and increased healthcare costs.
There may be other, general reasons to pooh-pooh the COLA increase, according to a recent report by The Senior Citizen’s League. It found that typical senior expenses have far surpassed COLA increases over the years. “To put it in perspective,” says Mary Johnson, a policy analyst for the group, “for every $100 of groceries a retiree household could afford in 2000, they can only buy $66 worth today.”
Taxable Earnings Rise. Every year, Social Security income is taxed at a rate of 6.2% for employers and employees on earnings up to a certain threshold. In 2019, the maximum taxable earning amount will increase $4,500 — from $128,400 to $132,900. While that means that higher wage earners will be paying taxes on more of their income, it also means they are likely to receive larger Social Security benefit checks once they retire.
Higher Maximum Benefits. As mentioned, there is a limit on the uppermost amount a retiree can collect in monthly benefits. In 2019, the maximum benefit will increase by $73 per month — to a total of $2,861. This suggests that for many people, the best financial strategy may be to wait as long as possible before filing to claim benefits.
An Older ‘Full Retirement Age.’ While people traditionally considered 65 years old to be “retirement age,” the Social Security Administration has long flouted that concept — permitting people to claim reduced benefits as early as age 62 but gradually increasing “full retirement age” to 67 years old for everyone born in 1960 or later. Those who turn 62 in 2019 are still able to claim reduced benefits, but they will not be considered to reach “full retirement age”— entitling them to the maximum in benefits — until some time later, when they reach 66 years and six months of age.
Increased Earnings Limits. People whose lives, budgets, or temperaments compel them to continue working while collecting Social Security benefits find that at least part of those benefits are temporarily withheld as a sort of a penalty once earnings reach a particular threshold. In 2019, those income limits will also increase slightly, by $600.
An example might illustrate this best: In 2019, Social Security recipients 65 and younger can earn up to $17,640; $1 in benefits will be withheld for every $2 earned over that limit. For those who reach full retirement age, the earnings limit soars to $46,920 — an increase of $1,560 from 2018 — and the penalty declines to $1 in withheld benefits for every $3 earned over the limit.
Disability Thresholds Higher. The 10 million Americans who qualify to receive Social Security disability — people who can’t work because they have a medical condition expected to last at least a year or result in death — may also see a slight increase in their monthly checks. In 2019, those who are legally blind may receive a maximum befit of $2,040 a month — an increase of $70; for those with other types of disabilities, the maximum will increase $40 a month, to $1,220.