2019 Social Security Inflation Adjustments: 2.8% for Benefits; 3.5% for Max Wage Limit

Last month I posted the 2019 Social Security inflation adjustment estimate of 2.8% based on 2 of the 3 months' CPI data available at that time.  This morning the final CPI-W data point was released and the final inflation adjustment for benefits is 2.8%, the highest since 2012. Unlike last year when most of the increase went to pay for catch-up Medicare premiums for many (due to hold-harmless clause), most of this increase will actually be seen in the net benefit hitting bank accounts.  The 2019 base Medicare premiums will be announced later this fall.  For the average SS benefit of $1,413/month, this is a $39.56/month increase; for the maximum benefit of $2,788, a $78.06 monthly increase.

For those paying into Social Security, the maximum wage subject to the 6.20% Social Security tax increased by 3.5% to $132,900 for 2019. This adjustment is based on the national average wage index for two years prior, or 2017.  Note there is no wage limit for the 1.45% Medicare tax that is also paid off wages, plus an additional 0.9% on earnings above $200,000 for individuals and $250,000 if married filing jointly (NOT indexed to inflation).  Your employer also pays these taxes (or you if self-employed), except the extra 0.90%.

Below are the details of how the inflation adjustment is calculated for benefits and the recent history of actual increases.

Note the inflation index used for Social Security is the non-seasonally adjusted index for wage earners (CPI-W), not the more common seasonally adjusted index for all urban consumers (CPI-U) regularly cited and reported in the media.  There is also an experimental inflation index called CPI-E which captures the common basket of goods and services for those age 62+.  There are years when these different indices can diverge significantly, but this year isn’t one of them.  The graph below shows these indices over the past five years.  The common CPI in the news every month is the light gray line and is right on top of CPI-W recently.

Watch for the 2019 Medicare premium announcement, including any extra premium charges, to determine your net benefit for 2019 (or wait for the Social Security notice later this year).  Regarding the extra premium charge, recall if your modified adjusted gross income from 2017 is above $85,000 for single or $170,000 filing jointly, you will pay an extra Income-Related Monthly Adjustment Amount (IRMAA) in 2019.  In the meantime, be assured it will be another solid increase on your gross, and even net benefit.

Posted by Kirk, a fee-only financial advisor who looks at your complete financial picture through the lens of a multi-disciplined, credentialed professional.  www.pvwealthmgt.com