It looks like Social Security benefits will increase by about 2.8% in 2019. Although that's down slightly from an earlier estimate, it still would be the largest benefit boost in seven years, according to The Senior Citizens League, a nonpartisan advocacy group representing more than 1 million retirees. Previously, the organization had projected a 3% increase in Social Security benefits next year.
The Social Security Administration will issue its official announcement of the 2019 cost-of-living adjustment, or COLA, in October following the Oct. 11 release of the consumer price index data for August.
Social Security COLAs are based on the increase in the CPI-W, which measures price inflation for urban workers, in the third quarter (July, August and September) of the current year from the corresponding third quarter of the prior year.
In July, the CPI-W increased 3.2% over the previous 12 months. In August, the index posted a smaller increase of 2.9% over the previous year, continuing a downward trend that started after the index peaked in June. If that pattern of ever-smaller increases continues with the September data to be announced next month, Mary Johnson, chief Social Security analyst for The Senior Citizens League, said she expects the average of the third quarter CPI-W to be 2.8%. But the economic impact of Hurricane Florence could be a wild card affecting the September data.
A 2.8% increase would boost the average Social Security benefit of $1,404 per month in 2018 by $39 next year and increase the current maximum benefit of $2,788 per month for someone who retires at full retirement age by about $78 per month.
The average and maximum Social Security benefits do not include delayed retirement credits. Social Security recipients who delay claiming benefits beyond full retirement age earn an additional 8% per year for every year they postpone benefits up to age 70. Those who retire before full retirement age receive reduced benefits for the rest of their life.
A 2.8% COLA in 2019 would be the biggest annual hike since 2012, when Social Security benefits grew by 3.6%. This year, the COLA was 2%, following a meager 0.3% increase in 2017 and no increase in 2016. Benefits rose by 1.7% in 2015, 1.5% in 2014 and 1.7% in 2013.
Many retirees should see a real increase in their net Social Security benefits in 2019 compared to this year, when their 2% COLA was nearly wiped out by a $25 increase in monthly Medicare premiums. Premiums for Medicare Part B, which covers doctors' fees and outpatient services, are usually deducted directly from monthly Social Security benefits.
The latest Medicare Trustees' report projects that basic Medicare Part B premiums will increase by about $1.50 a month to $135.50 per month in 2019. The official Medicare premiums will be announced in the fall. High-income retirees pay more, in some cases much more, for the same Medicare coverage.
Individuals with modified adjusted gross income of $85,000 or more and married couples whose joint income exceeds $170,000 pay a high-income surcharge on both their Medicare Part B premiums and Part D prescription drug plans. Surcharges, officially known as an income-related monthly adjustment amount, or IRMAA, are based on the last available income tax return, so 2019 premiums will be based on 2017 income.
In 2018, high-income Medicare beneficiaries pay premiums ranging from $187.50 to $428.60 per month per person, depending on income, compared to the standard Medicare Part B premiums of $134 per month. Next year, a new top tier surcharge will be added for individuals with incomes of $500,000 or more in 2017 and married couples whose joint income topped $750,000 in 2017.
Medicare beneficiaries subject to IRMAA surcharges receive notifications, usually in November, regarding their Medicare costs for the following year. However, if an individual has experienced a life-changing event, such as the death of spouse, divorce, marriage or retirement since their last tax return, they can appeal the surcharge by following the instructions on the IRMAA letter.