Financial Planning, Retirement

Will Social Security Recipients Notice The 2018 COLA?

10/17/17 8:00 AM

iStock-465941396.jpgThe U.S. Social Security Administration last week officially announced that the millions of Americans that receive Social Security benefits or Supplemental Security Income payments will enjoy a cost of living adjustment (COLA) of 2.0 percent in 2018, in line with our earlier projections. That is the largest COLA since 2012 but for many retirees the increased benefit could be quickly eroded by their monthly Medicare premiums.

Indeed, a “hold harmless” provision has protected about 70 percent of Social Security recipients from reductions to their benefits related to rising Medicare Part B premiums. Because of the way this special provision works, though, millions of older Americans will likely see no increase in their net operating Social Security payments for the third year in a row, according to a new report from The Senior Citizens League (TSCL). This is not a new problem, as Social Security benefits have grown by only 43 percent since 2000 while Medicare Part B premiums have jumped by 195 percent. Moreover, TSCL researchers estimated that Social Security benefits have seen a 30 percent reduction in buying power over that same period, implying the current COLA system is flawed.

As a result, TSCL is advocating for legislation that would provide “a more fair and adequate COLA, by tying the annual adjustment to the Consumer Price Index for the Elderly (CPI-E),” which TSCL projections show would provide a roughly 9 percent boost to Social Security benefits over the next 25 years. However, it remains uncertain whether such policy changes will actually occur. The clear takeaway for younger Americans is therefore that long-term participation in a tax-advantaged 401(k) plan and other retirement savings vehicles should be used to help limit their old-age dependence on the government (Social Security), and in turn reduce their overall sensitivity to annual COLAs.



Sources: U.S. SSA, TSCL

Post author: Charles Couch