If You’re Retired You Just Got a Pay Raise

Greetings! I hope and trust that this finds you well and enjoying life.

Please see the following article from the Wall Street Journal on big things happening with Social Security. And remember, once an increase is applied it’s permanent.

By Eric Morath and Anne Tergesen
Updated Oct. 11, 2018 2:49 p.m. ET

Seniors and other Americans receiving Social Security will see the largest increase to their benefits in seven years in January, a bit of relief that for the first time in years won’t be largely consumed by higher health-care costs.

The 2019 cost-of-living increase will be 2.8%, the Social Security Administration announced Thursday, which translates into an average increase in retiree benefits of about $40 a month. More than 62 million Americans receive Social Security benefits, most of them retirees.

While Social Security recipients get a boost, some other households will see slightly smaller paychecks: The maximum amount of earnings subject to the Social Security tax will increase to $132,900 from $128,400, a 3.5% increase. Earners hitting that new threshold will end up paying an additional $279 in taxes, and their employers will pay the same.

The cost-of-living adjustment, based on a formula that reflects changes in consumer prices, will be the largest for the monthly payments since a 3.6% increase in 2012. This year, the increase was 2.0%.

The gains come after no change to benefit payments in 2016 and a 0.3% increase in 2017. In those years, some beneficiaries and their advocates said that was a hardship because seniors were facing higher costs, particularly for medical care.

Patricia Hussemann, 70 years old, of Marana, Ariz., said next year’s adjustment would help her and her husband, who both receive Social Security payments.

“I know what my husband will do: He’ll golf more,” she said.

The small increases in recent years, she said, had made her think twice about what to buy at the grocery store.

“We can’t just work some overtime when expenses go up,” she said. “Our income is fixed.”

Seniors may be benefiting from broader inflation trends. Overall price increases in the past year have been concentrated in energy costs, including gasoline. Beneficiaries who don’t have daily commutes to jobs may feel less of a burden from higher gasoline prices, compared with other households.

Meanwhile, the pace of price increases for medical care has eased since 2016 and is growing in recent months at a slower rate than overall inflation.

Medicare costs are also expected to stay in check next year. This summer, Medicare’s trustees projected the standard monthly premium in 2019 for Medicare Part B, which covers doctor visits and other types of outpatient care, would increase $1.50 to $135.50. A final figure is expected in a few weeks.

“This year, people will get to keep much of the increase in their benefits. That’s the first time this has happened for a lot of people in the last couple years,” said Casey Schwarz, senior counsel for education and federal policy at the nonprofit Medicare Rights Center.

The 2019 increase in both the cost-of-living adjustment and tax threshold is in line with what economists forecast, so it doesn’t change the outlook for consumer spending or economic growth.

“But without the increase, beneficiaries’ real standard of living would be declining,” said Joel Prakken, an economist at forecasting firm Macroeconomic Advisers.

Small increases in recent years have strained Richard Morstad’s budget. He recently canceled cable-television service to save $125 a month.

“I’ll look forward to 40 extra bucks—Social Security is the only income I get,” said the 76-year-old from Austin, Texas. “But I’m not stupid. We haven’t gotten nearly any increase the last few years.”

Social Security is the foundation of a retirement income plan for the vast majority of Americans and it’s always good news when we see the Social Security Administration taking steps to keep it strong.

If you have questions about the above or any retirement-related planning give us a call.

Best regards,

Jeff Christian CFP, CRPC


Whether you think you can or think you can’t, you’re right.

Henry Ford

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