Unofficial estimate would be largest increase
since 2012, but retiree costs are growing even faster.
Jun 4, 2018 @ 2:00 pm
The annual Social Security cost-of-living
adjustment for 2019 could top 3% in 2019, which would be the largest increase
in seven years, according to a new estimate released by The Senior Citizens
League, a nonpartisan advocacy group representing more than 1 million retirees.
A 3% increase would boost the average Social
Security benefit of $1,404 per month in 2018 by $42 per month next year and
increase the maximum benefit of $2,788 per month for someone retiring at full
retirement age in 2018 by about $85 per month in 2019.
The average and maximum Social Security
benefits do not include delayed retirement credits. Social Security recipients
who delay claiming benefits beyond full retirement age earn an additional 8%
per year for every year they postpone benefits up to age 70.
A 3% COLA in 2019 would be the biggest annual
hike since 2012, when Social Security benefits grew by 3.6%. This year the COLA
was 2%, following a meager 0.3% increase in 2017 and no increase in 2016.
The COLA estimate for 2019 is based on
consumer price index data through April. The unofficial estimate by The Senior
Citizens League, although normally very reliable, could change depending on the
results of the next several months of CPI data before the COLA is officially
announced in October. Social Security COLAs are
based on the increase in the CPI-W, which measures price inflation for urban
workers, from the third quarter of the prior year (July, August and September)
to the corresponding third quarter of the current year.
"After the past nine years of COLAs averaging
just 1.2%, one would think that people living on Social Security would be
dancing in the streets," said Mary Johnson, a policy analyst at The Senior
Citizens League. "But in reality, retirees are experiencing cost increases in
common household expenses that are growing several times faster than 3%."
The group's annual survey of more than 1,100
retirees, conducted between January and March, found that household spending
for people age 65 and older rose by more than $79 per month in 2017 for more
than half of the respondents — about double the level of the COLA increase
received by the average Social Security beneficiary.
"The trend of retiree costs growing
faster than the COLA has been consistent over the past eight years and our
research indicates this will continue in 2019," Ms. Johnson said.
The Senior Citizens League survey found that
premiums for supplemental Medicare insurance policies, known as Medigap plans,
increased an average of 16% last year and total out-of-pocket medical expenses
grew by about 10%. The price of typical grocery items such as potatoes,
tomatoes, oranges and eggs all increased by 10% or more last year, and the cost
of home heating oil soared by 22%.
If Social Security benefits increase next
year, Medicare premiums for
the typical retiree could increase as well.
A "hold harmless" provision
prohibits annual increases in Medicare Part B premiums from exceeding the
dollar amount of the COLA increase in annual Social Security benefits to
protect most retirees from a net decline in Social Security benefits from year
to year. Medicare Part B premiums, which pay for doctors' fees and outpatient
services, are normally deducted directly from Social Security benefits.
The 2% COLA increase in 2018, which boosted
average Social Security benefits by about $27 per month, allowed the basic
Medicare premium to jump by $25 per month after remaining steady for several
years. As a result, the higher Medicare premiums virtually wiped out the COLA
increase. A similar situation could occur next year.
The hold harmless provision applies to about
70% of retirees who have their Medicare premiums deducted directly from their
monthly Social Security payments. The remaining 30% are not protected because
they do not receive Social Security benefits; are directly billed for Medicare
Part B premiums; are newly enrolled in Medicare; or pay a high-income Medicare
premium surcharge.
Individuals with modified adjusted gross
income of $85,000 or more and married couples whose joint income exceeds
$170,000 pay a high-income surcharge on both their Medicare Part B and Part D
prescription drug plan premiums. Surcharges are based on the last available
federal income tax return, so 2018 premiums are based on 2016 income.
This year, high-income Medicare beneficiaries
pay premiums ranging from $187.50 to $428.60 per month per person, depending on
income, compared to the standard premium of $134 per month. Next year, a new
top tier surcharge will be added for individuals with income of $500,000 or
more in 2017 and married couples whose joint income topped $750,000.
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