In the wake of the midterm elections, the Social Security Administration announced some new changes to the Social Security program effective January 1, 2019. Read on to learn a little about what you can expect:

Employees are currently required to pay 6.2% Social Security tax (employers match that payment) on income up to $128,400.  In 2019, this maximum taxable earnings number will increase to $132,900.

What the social security administration defines as full retirement age (FRA) will continue to increase.  62 years of age is currently the absolute earliest one can begin receiving social security benefits.  However, claiming your benefits before full retirement age will result in a permanently reduced payout.  If you turn 62 in 2018, your full retirement age is 66 and 4 months, but if you turn 62 in 2019, your FRA increases to 66 and 6 months.  FRA is fixed to increase by two months each year until it hits 67. (Anyone born in 1960 or after will have a FRA of 67).

If you are currently collecting Social Security benefits, but are still working, you may find all or a part of your payouts withheld, depending on how much you earn.  In 2019, you can earn up to $17,640, but $1 will be deducted from your payment for every $2 you earn over that limit.

Thresholds for Social Security disability payments will be increasing for 2019 as well.  The legally blind will receive a max $2040 per month (a $70/m increase from 2018) and non-blind disabled individuals will receive a $40/m maximum benefit increase to $1,220.

Here’s a big positive to pay attention to:  A CPI-W calculation is implemented by the Bureau of Labor Statistics (BLS) to ensure your social security payment has the same purchasing power that it did the previous year and in 2019, Social Security recipients will see a 2.8% cost of living adjustment (COLA) to combat inflation.  This stands as the largest increase since 2012 with the average recipient’s monthly check increasing from $1,422 in 2018 to $1,461 in 2019.

Why does this matter?  Let me remind you of something by means of a little story…

Let’s pretend your father buried a $20 bill in his back yard back in 1970 and it’s been there, ever since.  Recall the average cost of gasoline in the early 70’s was around $0.35/gallon.

Fast forward to today and let’s say your parents decided they are tired of yard work, cleaning, and the noisy new neighbors, so they’re planning a move into a senior living community.  Before they leave, your father remembers the $20 he buried and figured he can finally use it to purchase some gas on their way to the new home.

In 1970, he could have purchase over 57 gallons of gas with that $20, but depending on the vehicle, he may be able to fill up half the tank today (at $2.60/gallon).  I think you see my point…

Inflation is very real, and something we need to remain wakefully aware of, especially as it relates to financial planning.  If you expect you’ll need $80,000 per year in retirement (in today’s dollars) to fund your desired standard of life, whether you’re retired or not, you’ll likely need a whole lot more than that 20 years from now.

The same goes for future goals like travel, wedding costs, cars, vacation homes, and other quality-of-life desires.  All these things on your bucket list will cost more in the future than they do today, but with proper planning, savings, and investing, these dreams may become a reality.

Have a blessed day!

Zak

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