If you currently receive Social Security benefits or are nearing retirement age, you should pay close attention to the discussions in Washington DC about Social Security. Over the last 20 years, politicians of all stripes have proposed ideas to change Social Security. The Trump administration is no different. In this article, we will review the top Social Security changes in 2019 that will have the most impact.
Social Security Changes in 2019
The Trump administration has proposed changes to Social Security benefits that were included in the 2019 budget submitted to Congress. This actually breaks a promise the President made – that he will not touch Social Security benefits.
However, before we review President Trump’s recommendations for changes to the Social Security program, let’s first share some good news that seniors will be thrilled to hear.
Social Security Gets a Big Raise in 2019
Yes, you read that right. If you are currently on Social Security benefits, the annual cost of living adjustments (COLA) is probably something you pay close attention to.
That is because, over the last few years, the annual COLA has been small. In 2018, it was 2%, and 0.3% in 2017 and in 2016, it was zero. And between 2013 and 2015, it has averaged about 1.7%.
However, for 2019, early projections show that the COLA is going to be the largest since 2012. Indications are that it will be between 2.5% and 3%. The final number, based on the October Consumer Price Index will probably be 2.7%.
This will make it the largest increase since 2012 as shown by the image below:
Will Medicare Ruin the Fun?
If you have been on Social Security benefits for a while, you are probably one of the many benefit recipients who get excited about COLA.
Then you watch in disappointment as increases in Medicare Part B premiums eat up all the increase in benefits you were expected to get from COLA.
The good news is that even though Medicare premiums for 2019 haven’t yet been announced, any increase in Part B monthly premiums is expected to be modest.
Trump Wants to Cut Social Security
As candidate and President, Donald Trump promised not to touch Social Security. But that promise is now gone as his 2019 budget to Congress proposes steep cuts to Social Security.
While it does seem that President Trump largely leaves the non-disability portions of Social Security alone, he is making deep cuts to Medicare. Cuts to Medicare will be devastating to seniors on Social Security.
It may mean that they may have to come out of pocket to pay for more medical expenses.
For a group that largely survives on a fixed income, any proposal that requires them to pay more services out of pocket will have a severe negative impact.
Disability Benefits Cuts
As explained above, while the President leaves the non-disability portions of Social Security alone, he is proposing very deep cuts to Disability Benefits, with both SSDI and SSI benefits on the chopping block.
Here are the highlights:
The President’s budget calls for benefit cuts for seniors with disabilities, including:
- Putting a limit to the retroactivity of applications for disability benefits from 12 months to six months (This proposal would cut SSDI benefits by an average of $7,000 for beneficiaries);
- A proposal to deny unemployment compensation payments to certain SSDI beneficiaries; and
- Putting a cap on the amount payable to individuals who receive Supplemental Security Income (SSI) while living with other SSI recipients.
More Social Security Changes by 2020
There are more changes to Social Security coming in the next few years. Here is a summary:
Full Retirement Age Will Go Up
For those who are getting ready to retire, one of the main anxieties about Social Security is the fact that the retirement age continues to go up. Listen to any politician in Washington DC talk about “fixing” Social Security and the first thing they talk about is raising the retirement age.
Their main reason for proposing this is that people are living longer, therefore retirements are getting longer. As a result, the Social Security Trust Fund cannot pay everyone their benefits due if changes are not made.
Furthermore, although it is true that the Social Security program cannot go bankrupt even if it’s just funded by the payroll taxes, It does not mean it will be able to pay 100% of the retirement benefits due. That is where increasing the retirement age comes in.
The Reagan administration, in 1983 passed reforms of Social Security, which included a gradual increase to the full retirement age.
Starting in 2017, and ending in 2022, the full retirement age will increase by two months with each passing year (from age 66 to 67). Therefore, by 2020, the full retirement age will have advanced an additional four months from 2018 to 66 years and eight months.
If you are planning to retire soon, you may have to wait a bit longer to receive your full Social Security Benefit payments.
Your Social Security Dollars will Buy Less
According to a recent report, the purchasing power of Social Security dollars plunged 30% since 2000.
One of the reasons for this decline is inflation. Even though the Social Security Administration does an annual cost-of-living adjustment (COLA), the way the COLA percentage is determined works against seniors and their purchasing habits.
This leads to a smaller annual COLA than the true inflation most seniors are facing. Which means that seniors who depend on Social Security as a big part of their income are at a disadvantage due to rising prices on things they spend the most on.
In addition, the past 36 years has seen healthcare inflation rates that are generally higher than Social Security’s COLA. This further eats into any COLA increases seniors get since it is all consumed by increasing Medicare Part B premiums.
Wealthy People will Pay more Social Security Taxes
By 2020, it is projected that the wealthy will pay more in Social Security taxes. Since payroll taxes are what funds the Social Security program, this is some good news for the long-term sustainability of the program. Here’s why:
Currently, the maximum payroll income that can be taxed for Social Security is of $128,400, as of 2018. However, as the US economy grows and wages keep rising, the cap on taxable income will also have to be adjusted. It is, therefore, possible that by 2020, that cap could rise to see $132,000 or $133,000.
More Seniors Will See Their Benefits Taxed
In 1983, Congress passed a law that introduced the taxation of Social Security benefits. If you are on Social Security and file your taxes as an individual (single), you will pay federal taxes on any earned income of over $25,000.
If you are on Social Security and file taxes as a married couple (filing jointly), you will pay federal taxes on any earned income over $32,000.
In 1993, Congress again passed another law that made it possible for the government to tax up to 85% of Social Security benefits. Therefore in addition to the earned income thresholds above, your actual Social Security benefits are subject to federal taxes.
For individuals, that threshold is any Social Security benefits of over $34,000 is subject to federal taxes while couples filing jointly have a threshold of over $44,000.
Here is the issue: The average Social Security benefit payments continue to rise due to cost of living adjustments. In addition, wages continue to rise due to inflation.
This means that the average senior in receiving Social Security benefits and still working is probably earning more money than say someone in 1983 or 1993 when the two taxes laws on Social Security benefits and earned income were passed.
However, the income thresholds for the taxation of benefits haven’t been adjusted in almost 35 years. This means that seniors should expect to see more of their benefits and earned income taxes in the coming years.