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Your Social Security Benefit May Be Worth Less Than You Think

Social Security benefits aren't keeping pace with rising costs of living


Retirees receiving Social Security benefits get periodic cost of living adjustments (COLAs). COLAs are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Unfortunately, many believe this is the wrong index to tie benefit increases to because it does not accurately reflect seniors' spending patterns.
Seniors often devote more of their income to medical costs than the general population. Unfortunately, in 33 out of the past 35 years, healthcare costs have risen at faster rates than Social Security COLA increases. Food and housing cost increases are also outpacing COLA for retirees on Social Security.
If Social Security benefits don't rise as much as the costs of products and services used by seniors, the latter have less purchasing power. Even if income appears to go up because you receive a small raise, benefits will actually be worth less in real terms.
And, unfortunately, there's not even a guarantee you'll get a raise -- even on paper. Since 2010, COLAs have averaged just 1.35% per year. In three of the past 10 years, seniors didn't get a raise at all, and in 2016, the COLA was just 0.3%. 
Medicare premiums are paid out of Social Security
Seniors on Social Security are typically covered by Medicare. However, contrary to what many believe, Medicare isn't free. Premiums are typically charged for Medicare Part B, which covers routine visits to the doctor. These premiums are directly deducted from Social Security checks for most seniors.
Most retirees pay a standard Medicare Part B premium and are protected by hold-harmless provisions preventing premiums from rising more than a Social Security COLA adjustment. If premiums rise $20 but COLAs provide only a $10 raise, you'll only pay $10 more. However, seniors with modified adjusted gross incomes above $85,000 for singles or $170,000 for married couples must pay an income-related monthly adjustment amount and aren't protected by hold-harmless provisions.
The problem occurs when Social Security raises come and seniors are paying premiums below the standard premium because of hold-harmless provisions. When this happens, Medicare costs increase.
This occurred when seniors got a 2% COLA from 2017 to 2018. In 2017, standard Medicare premiums were $134, but seniors protected by hold-harmless provisions were only paying $109. When Social Security went up in 2018, they became responsible for the extra $25 in premiums.

Since Medicare premiums increased so much, around 70% of retirees saw their entire COLA eaten up by the extra premiums and won't get any more money in their Social Security checks in 2018, even with a 2% raise. This is a problem many older people will face throughout their lifetimes while collecting Social Security.

RepliesTypeAuthorRecsPost DatePost
GNflaboy012/31/2017, 5:26pm