Social Security benefits include automatic cost of living adjustments (“COLAs”), which are intended to ensure that payments keep pace with inflation.

However, years of low inflation and rising Medicare premiums have meant that, for many seniors, the adequacy of Social Security for retirement income has declined.

Over the past eight years, COLAs for Social Security have averaged just over 1% per year, while Medicare Part B premiums – which cover medical services and outpatient care, and which in most cases are deducted directly from Social Security payments – have risen by more than 10% per year. For many seniors, health care costs consume one-third to one-half of their Social Security income.

There is a “hold harmless” provision – established in 1988 – that says that the annual increase in Medicare Part B premiums cannot exceed the annual increase in Social Security benefits. But the rule doesn’t protect all seniors, and about 30% of Medicare beneficiaries must carry a bigger increase in years when the hold harmless rule is applied. Individuals who are enrolled in Medicare but not yet collecting Social Security are not covered by the hold harmless provision, nor are newly enrolled Medicare beneficiaries or high-income retirees.

No COLAs were made to Social Security benefits in 2010, 2011 and 2016. Last year, the COLA was a negligible 0.3%, meaning that the average monthly Social Security benefit rose by $5. For 2018, the COLA was 2%, raising the average Social Security benefit by about $27 per month. But Medicare Part B premiums rose by $25 per month, effectively wiping out any inflation adjustment in benefits.

In 2017, the Medicare trustees projected that Part B premiums will increase by about 5% per year over the next decade. Other estimates project even faster increases. Meanwhile, the annual COLA for Social Security is expected to be about 2.5%.

Content courtesy of Mary Beth Franklin and Investment News

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