As with many things related to Social Security, there is good news and bad news. In short, the good news is that the Social Security Cost of Living Adjustment (COLA) is predicted to be 2.1% for 2018 which means that your Social Security benefits will increase by that amount.
The bad news however is that other costs for seniors are generally rising at a fast rate than that 2.1%.
Since 2000, it has been reported that Social Security beneficiaries have lost nearly one third of their buying power because the cost of items typically purchased by seniors have exceeded the annual inflation increases in their Social Security retirement benefits according to a new report by the Senior Citizens League (TSCL) and as reported by Mary Beth Franklin of InvestmentNews.
For 2018 however, the predicted 2.1% COLA increase should be a welcome development vs. the tiny 0.3% increase for 2017. Because of the 2008 recession and lower than usual economic growth and interest rates since that time, Social Security COLA adjustments have averaged just 1% since 2012 with multiple years of no increase since 2008.
COLAs are based on increases in the CPI-W, which measures price inflation for urban workers, from the third quarter of the prior year to the corresponding quarter of the current year. The Social Security Administration will make its official announcement about next year’s COLA in October.
Mary Johnson, chief policy analyst of The Senior Citizens League and author of the group’s inflation study, noted that the 2.1% COLA estimate for 2018 could change between now and the fall since there are still several months to go before all the data is in. But, she said, the trend is clear: Inflation is picking up and seniors are suffering.
Since 2000, Social Security benefits increased 43% while typical senior expenses, as calculated by The Senior Citizens League’s annual buying power report, have jumped 86%.
The survey found that a person having the national average Social Security benefit of $816 per month in 2000 would have $1,169.80 per month by 2016 due to automatic COLA increases in most years.
But because retiree costs are rising substantially faster than the COLA, that individual would require a Social Security benefit of $1,517.80 per month in 2017 just to maintain his or her 2000 level of buying power.
“Beneficiaries have just 70% of the buying power they did in 2000, making it more difficult for retirees, particularly those who have been retired the longest, to afford necessities such as medical care, food and housing,” the study found.
More than 60 million people received Social Security benefits last year. More than 70% of those beneficiaries were retired workers and their spouses and children, according to the Social Security Administration. About 10% of beneficiaries were the survivors of deceased workers and the remaining 18% were disabled workers and their families.
Senior advocacy groups, including The Senior Citizens League, argue that when it comes to measuring inflation experienced by retired and disabled individuals, the government is using the wrong index. The CPI-W gives less weight to medical care and housing costs — two categories that have experienced rapid inflation and represent a larger portion of the budgets of older households than younger workers.
For example, Medicare Part B monthly premiums have risen 195% to $134 in 2017 from $45.50 in 2000 and average out-of-pocket costs for prescription drugs have increased 184% to $3,132 in 2017 from $1,102 in 2000.
The average monthly premium for supplemental Medigap insurance has increased 122% to $264.45 per month in 2017 from $119 per month in 2000, according to the study. Overall, average medical out-of-pocket expenses for people age 65 and up are nearly double today compared to 2000, rising from $6,140 per year to $12,125 per year.
Higher-income retirees, defined as single individuals with incomes that top $85,000 and married couples with joint incomes over $170,000, pay a higher monthly premium for both Medicare Part B, which covers doctors’ fees and out-patient services, and Part D, which covers prescription drugs.
The Bottom Line
While there is discussion in Congress regarding making changes to the index used to calculate the Social Security COLA, making the optimal Social Security claiming decision and maximizing your benefits is more important than ever. You should work with a Social Security advisor that is an expert in the myriad of strategies that are available to you.
Determining which Social Security strategy is best for you and your family requires careful analysis as each situation is different. If you have questions and would like to schedule a Free Initial Consultation with an advisor, you can do so by clicking here.
Until next time,
Matthew Allen is the Co-Founder/CEO of Social Security Advisors and creator of the new course Maximizing Your Social Security produced in conjunction with Weiss Educational Services. Matthew has helped thousands of seniors maximize their Social Security benefits and avoid costly mistakes when filing. Matthew has been at the forefront of financial services for over a decade. In addition to co-founding Social Security Advisors, Matthew also founded The Universal Group of Companies, a private investment firm, in 2004. From 2000 to 2004, Matthew was a NYSE Market Maker with LaBranche & Co., a Fortune 500 New York Stock Exchange firm.