It’s not great news for retirees who depend upon Social Security, even if it is the biggest increase since 2012. If you want a high-quality lifestyle during retirement, don’t count on Social Security or Medicare.
First, the good news from AARP’s article, “Social Security Payments to Increase 2 Percent Next Year:” Social Security benefits will increase in 2018, due to a cost of living adjustment, known as a COLA. Now, the bad news: the increase practically vanishes due to the rising cost of Medicare premiums and other costs.
The COLA, announced by the Social Security Administration, will boost the average beneficiary check by $27.38 a month, or about $329 a year. The increase is the largest since a 3.6% hike in 2012.
Even though overall inflation remains relatively low, those seniors on fixed incomes and struggling to make ends meet, are feeling an economic bite. For example, average consumer electricity bills are up about 3.5% over 2016, and prescription drug prices continue to soar.
The 2018 COLA could be hindered by higher Medicare Part B premiums. The standard premium is now $134 a month, but many participants pay about $109 a month if they have the fee deducted from monthly benefit payments. A “hold harmless” provision in federal law prohibits Medicare from raising a person’s Part B premiums, if it reduces their Social Security benefits. In the past two years, most Medicare beneficiaries have been held harmless because, without a significant COLA, increasing their premiums would have meant lower Social Security benefits.
In 2018, the COLA will be big enough to permit the increase in premiums. Medicare costs have grown very slowly in the past few years. The increase in premiums some will see next year, is an unfortunate side effect of not having a healthy Social Security COLA in recent years. Medicare Part B premium prices are expected to be announced very soon.
For many, even this small adjustment will be erased by increases in Medicare premiums and other health care costs.
Critics say Congress needs to update the formula used to calculate the yearly COLAs, so it reflects the real expenses that seniors and Americans with disabilities face daily.
The Social Security Administration also announced that the maximum amount of earnings subject to Social Security tax—now $127,200—would increase to $128,700 next year. In 2017, 42 million retirees are receiving Social Security payments averaging $1,377 a month, or about $16,524 a year. With the 2018 COLA, payments will average $1,404 a month, or $16,848 a year.
Social Security trustees have warned in the past that the fund would be depleted in distant future. In the annual report issued by trustees in 2017, they said that by 2034, the fund will be depleted.
Reference: AARP (October 16, 2017) “Social Security Payments to Increase 2 Percent Next Year.”