Cost of Living Adjustments for 2019

By: AnnaMarie Mock, CFP®

It’s a new year and I can’t think of a better time to highlight cost of living adjustments affecting dollar limitations for retirement-related items and social security benefits for 2019.

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the Federal government’s Thrift Savings Plan increased from $18,500 to $19,000. The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the Federal government’s Thrift Savings Plan remains unchanged at $6,000.

The limit on annual contributions to an individual retirement account, or IRA, increased from $5,500 to $6,000. The catch-up contribution limit for individuals aged 50 and over remains unchanged at $1,000.

Below is a summary of some key retirement plan figures for tax year 2019:

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The income phase-out range for individuals making contributions to a Roth IRA is $122,000 to $137,000 for singles and heads of household, an increase from $120,000 to $135,000 in 2018. For married couples filing jointly, the income phase-out range is $193,000 to $203,000, up from $189,000 to $199,000.

While these retirement plan contribution limit increases may seem minor, they are important to keep in mind for financial planning purposes. If you contributed the maximum to your employer’s retirement plan last year, and plan on doing the same this year, you should check to make sure your salary deferrals have been updated to reflect the increased contribution limit.

In addition to the cost of living adjustments for retirement plan contributions, retirees also received a cost of living adjustment for the calendar year 2019. The Social Security Administration (SSA) announced that social security benefits will increase by 2.8% in 2019, which is the largest increase since 2011. The cost of living adjustment (COLA) is based on the Consumer Price Index (CPI) from the 3rd quarter (Q3) of the prior year to the 3rd quarter of the present year (i.e. Q3 2017 to Q3 2018).

The average COLA for social security benefits over the last 30 years has been 2.5%, which seems hard to believe given the modest increases over the last decade. From 2009 to 2018, there have been four years where the COLA was 0%. If an individual began collecting during this timeframe, they have seen little growth in their social security benefits. However, their cost of medical insurance has increased significantly.

Annually, the Centers for Medicare & Medicaid Services (CMS) determine the following year’s Part B premium, and for 2019, the base monthly premium will be $135.50. This is about a 1.1% increase from last year’s base premium of $134.00.

Although Social Security benefits are increasing more than Medicare Part B premiums for 2019, this has not been a recurring event in the past. Over the last 30 years, the year over year average increase for Medicare premiums has been about 5.25%. This means that the cost of Medicare Part B has, on average, been more than the increase in social security benefits - 2.75% more to be exact.

Although social security benefits are increasing more than Medicare premiums for 2019, some will still face higher Medicare Part B premiums because of income related surcharges. The hold harmless provision prohibits the Medicare Part B premiums from increasing more than the COLA of social security. This applies to most individuals who are already receiving social security benefits and have their Medicare Part B premiums being paid from the benefits. For 2018, this provision covered about 70% of enrollees. The other 30% fell into two categories – the individual (1) had an adjusted gross income above the income threshold triggering the Income Related Monthly Adjustment Amount (IRMAA) or (2) did not have the Medicare premiums being paid from the social security benefits.

In December 2018, the SSA posted the social security COLA notices online for retirement, survivors, and disability beneficiaries who have a my Social Security account.

If you have any questions about cost of living adjustments affecting dollar limitations for retirement plans and social security benefits, please do not hesitate to reach out to the HIGHLAND team.