Rising interest rates may be wreaking havoc on the markets, but they mean good news for those relying on Social Security: More than 63 million Americans will see an increase in their Social Security and SSI benefits in 2019.
What’s the reason for the change? Inflation appears to be on the way up. Typically, higher inflation rates reflect higher interest rates, and you might have already seen the impact on variable mortgage and credit card bills. To keep up with those changes, federal benefits automatically increase when the cost of living rises, as measured by the consumer price index (CPI). The CPI is published by the Bureau of Labor Statistics and reflects “changes in the prices paid by urban consumers for a representative basket of goods and services.”
The latest annual inflation rate for the United States is 2.3%, as reported by the Bureau of Labor Statistics (BLS) for September of 2018. That’s the highest rate recorded in September since 2011. It should not surprise you then, to learn that the 2.8% boost to Social Security and SSI benefits in 2019 will mark the highest increase since 2012. For comparison, the adjustment for 2018 was 2% and 0.3% in 2017 – there was no change in 2016.
A 2.8% increase would translate into an average Social Security benefit of $1,461 per month, up $39. The increase would boost the current maximum benefit to $2,861 per month, up $73. The increase would tick the average up for disabled workers to $1,234.
How do the increases for payouts compare to contributions? Other benefit amounts also rely on cost of living numbers. For workers paying into the system, the contribution base for Social Security is expected to increase more than 3% to $132,900. The base is the amount of wages used to calculate contributions to the system (the same limits apply for purposes of figuring benefits). The amount of tax paid on the base amount is set by statute at 6.2%. The employee pays that amount (6.2%) and the employer also pays that amount (6.2%) for a total of 12.4% per worker up to the cap.
That extra you see in your payroll withholding is attributable to Medicare tax. Medicare is taxed at 1.45% on wages for both employees and employers, totaling 2.9%. There is no cap on wages for purposes of Medicare tax. And, don’t forget that as of 2013, individuals who earn more than $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9% in Medicare taxes.
(For more on how Social Security works, click here. For more on understanding what’s reported on your form W-2, click here.)
As noted, the base for earnings in 2019 will be $132,900, as compared to $128,400 for 2018. You can see the historical increases in the chart below (data via SSA.gov):
For complete 2019 rates, see this Social Security fact sheet (downloads as a PDF).
