WASHINGTON—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, other families 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%.
A larger monthly payment will bring “needed income security to those Social Security beneficiaries and their families who depend on their earned, modest benefits,” AARP Chief Executive Officer Jo Ann Jenkins said in a statement.
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.
Now, 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. The final figure on the premium increase may not be announced immediately. The Centers for Medicare and Medicaid Services typically releases it a few weeks after the Social Security Administration announces its cost-of-living adjustment.
“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 Social Security Administration determines annual cost-of-living adjustments from a Labor Department inflation gauge, the consumer-price index for urban wage earners and clerical workers, or CPI-W. That measure is slightly different from the more broadly reported index that covers all urban consumers.
Both inflation gauges show Americans are facing higher costs compared with a year ago.
The 2019 increase is in line 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.