Social Security cards on top of a $100 bill

Social Security, one of America's most popular public programs, will deliver a welcome change in 2019 to the nearly 48 million older adults collecting retirement benefits. The average monthly payment will rise by 2.8 percent, which is the biggest cost-of-living adjustment (COLA) since 2012.

It's not a huge amount—an average hike of $39 a month, with the average check rising to $1,461, vs. $1,422 in 2018. But even a few dollars more can make a big difference for many older Americans.

Two out of 3 retirees report that Social Security is a major source of retirement income, according to a 2018 survey by the Employee Benefits Research Institute (EBRI) and Greenwald Associates.

"While a $39 raise may not seem like much, it can help cover needed medications or enable someone to put more food in the cart at the grocery store,” says Kathy Stokes, a senior adviser at AARP who specializes in financial issues.

Another piece of good news: Retirees are more likely to notice the raise in their checks. In previous years, small increases in Social Security were offset by rising Medicare premiums, which are typically deducted from benefit payments. But for 2019, Medicare Part B premiums only went up by $1.50.

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There are other changes to Social Security looming next year and beyond, including higher taxes for higher earners and a rising age for full retirement. And as always, Washington lawmakers are debating possible changes to the program.

Whether you’re collecting a Social Security check now—or still paying into the program with the hope that you will receive benefits someday—it’s important to understand the changing rules so that you can make the right planning and claiming choices. Here’s what’s ahead for 2019.

The Benefit Hike May Lag Your Rising Costs

The small boost to their benefit checks is an overdue change for most seniors, who have seen little or no COLA adjustment for most of the past 10 years. But those payments provide only modest help in preserving retirees' buying power, which continues to lose ground to inflation.

Under Social Security’s COLA formula, benefit increases are based on the Consumer Price Index (CPI), which measures inflation based on purchases made by average consumers. But older Americans typically buy a more costly set of goods and services, says Mary Johnson, policy analyst for The Senior Citizen's League (TSCL), a nonpartisan advocacy organization in Alexandria, Va.

In a study using a CPI that tracks purchases by the elderly, Johnson found that the average Social Security benefit has lost 34 percent of its buying power over the past 19 years. “Since 2000, cost-of-living adjustments have increased Social Security benefits by a total of 46 percent,” Johnson writes in the report, “while typical senior expenses grew more than twice as fast.”

High Earners Will Pay Higher Payroll Taxes

Most workers are familiar with the Federal Insurance Contributions Act (FICA) tax, which deducts 6.2 percent of your gross earnings from your paycheck in order to fund Social Security and 1.45 percent to cover Medicare. (Generally, your employer matches your payment for a total of 15.3 percent contribution.)

Next year that rate remains the same, but the maximum amount of earnings subject to those taxes is rising from $128,400 in 2018 to $132,900. That means higher earners will be paying FICA taxes on an additional $4,500 of their income in 2019.

Still, there’s an upside to those higher taxes. The more you pay into Social Security throughout your working life, the larger the benefit when you retire. In 2019 the maximum benefit at full retirement age will be $2,861 per month, a benefit increase of $73 per month vs. the 2018 maximum benefit of $2,788.  

Full Retirement Age Will Continue to Rise

When the program first began, 65 was the age at which most seniors could collect their full retirement benefit. That’s been inching up, a couple of months at a time, for the past several decades and will continue to do so until it reaches 67.

In 2019, people turning 62 (those born in 1957) won't be eligible for their full retirement benefit until they reach the age of 66 and six months, up from 66 and four months for those born in 1956; 66 and two months for people born in 1955 and 66 for everyone born between 1943 and 1954. (You can find your full retirement age on this Social Security Administration chart.)

Of course, older Americans can still start collecting Social Security early, at age 62—though most experts say that’s generally ill-advised. According to the Center for Retirement Research at Boston College (PDF), your benefit will be approximately 30 percent less than it would be if you waited until full retirement age.

Your benefits continue to grow each year you put off collecting up until age 70, when your check could be about 76 percent bigger than if you’d claimed at 62. So the longer you can afford to wait before claiming, the better.

“Your Social Security retirement benefit is one of the few investments designed to last a lifetime, is indexed for inflation and is backed by the government,” says Brent Neiser, a certified financial planner and senior director of National Endowment for Financial Education (NEFE).

Given those potential benefits, most workers would do best to wait until full retirement age—or until age 70, if possible—before claiming, says Neiser. 

Early Filers Who Work Keep More Benefits

People who take Social Security before full retirement age and still work will be able to earn $17,640 in 2019—up from its current $17,040—before part of their benefit is temporarily withheld. Beyond that amount, the Social Security Administration will deduct $1 for every $2 earned.

A different deduction formula applies in the year you reach full retirement age. In 2019 those reaching this milestone will see $1 deducted for every $3 in wages up to the earnings limit of $46,920, until the month you reach full retirement age. After that, you can earn as much as you’d like without any penalty.

And starting at full retirement age, your benefits will be adjusted to account for the number of months you lost some or all of your payments, so you may eventually recoup those deductions. 

Reform May Be on the Horizon

Given the overwhelming popularity of Social Security, politicians have long been reluctant to tinker with the program. But there’s widespread agreement that reforms will ultimately be required to preserve its long-term solvency.

In 2018 the total cost of the program is projected to exceed its total income for the first time since 1982, according to the program’s trustees report, and next year the decline will continue. By 2034 the trust fund reserves are expected to be depleted. At that point, Social Security would be able to pay out about 75 percent of scheduled benefits.

Lawmakers in Washington always seem to be debating ways to shore up the program. Among the reforms that have been suggested are raising the full retirement age higher still; having big earners pay even more in Social Security taxes; and redefining how cost-of-living adjustments are calculated to a formula that would raise the annual COLA more slowly, according to TSCL’s Mary Johnson.

But whatever the future of the program holds, it important to understand the limits of Social Security benefits. “Social Security was never intended to replace all or even most pre-retirement income,” says NEFE’s Neiser.

Clearly, building your personal savings—especially in a tax-advantaged account, such as a 401(k) or IRA—is an increasingly important piece of retirement planning. "It's also important to keep investment costs low, always roll over the full amount of retirement savings during a job change, and avoid borrowing from your retirement accounts,” Neiser says.

Using the savings tools at myretirementpaycheck.org, or those offered by your 401(k) provider or fund company, can also help you get on track and stay there.