Social Security Cost Of Living Adjustment (COLA)
JEHM Wealth & Retirement knew the news was going to be disappointing. In October it became official: Social Security recipients will be getting a raise of only 0.3% next year. On a $1,200 benefit that’s an extra $3.60 a month. On a $3,000 benefit it’s $9.
But beneficiaries may not even see that amount. If the Medicare Part B premium rises by more than the dollar amount of an individual’s Social Security COLA, the beneficiary will be spared the full premium increase, but their entire COLA will be swallowed up by Medicare premiums leaving their Social Security checks unchanged. That’s if they’re one of the 70% of beneficiaries who are held harmless as a result of having their Medicare premiums deducted from their Social Security checks in 2016.
Who is not held harmless?
Individuals who will not be held harmless in 2017 are people who: (1) enroll in Medicare for the first time in 2017; (2) did not have Medicare premiums deducted from their Social Security check in 2016 (i.e., they are delaying benefits); and (3) have modified adjusted gross income over $85,000 if single or $170,000 if married and therefore are subject to the income-related monthly adjustment amount.
Cost Of Living Adjustment Projections
Each year, in their annual report, Social Security trustees project the system’s financial operations over the next 75 years under low-cost, intermediate-cost, and high-cost scenarios. Their inflation projections have gradually been coming down. A few years ago they lowered it to 2.7%; this year’s report shows 2.6% as their long-term COLA projection. Interestingly, this COLA Estimate shows a projection of 2.9% for next year’s COLA, followed by 2.6% per year thereafter.
These COLA projections may seem high in light of today’s low inflation and recent low COLAs, but remember, they are projecting economic cycles over the next 75 years. Based on this COLA Table, the average COLA since 1975 (43 years) was 3.7%. This included the double-digit inflation years of 1980 and 1981 as well as the three 0% years we’ve seen recently. If we go back just 10 years, the COLA averages 1.7%.
There is a lot to know about Social Security from year-to-year, that is why JEHM Wealth & Retirement is here. To help guide you to and through retirement.