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Social Security Increases Are Coming... Sort Of

Live it up, Social Security recipients – unlike this year, you are getting a raise next year.  But before you get too giddy, let me explain.  The estimated increase for 2017 is A WHOPPING 0.2% (two-tenths of one percent).  For the average Social Security recipient (who receives $1,347/month), this means an increase of $2.69/month.

So much for the good news.

Here’s the bad news.  Although you will pay taxes on it (if you are above the 0% tax bracket), you won’t see it.  The agency that granted it to you is taking it away to pay for increased costs of Medicare.  Easy come, easy go, I guess.

But wait, it gets worse.  Medicare Part B premiums are scheduled to increase by more than that.  Thankfully, those of us who are already on Medicare B and collecting Social Security benefits are protected by the Medicare “hold harmless” rule, which caps our Medicare premium increase at the amount of our Social Security increase.  So, while they take it all, they don’t take away more than our increase.  Why don’t I feel better?

And yes, it gets even worse!  If you happen to be 65 years old, but not yet collecting Social Security (after all, if you are 65, you are still a year from full retirement age, which is 66 for those of us that age group) you are “encouraged” to go on Medicare, as failure to do so will result in a lifetime penalty.  About 30% of Medicare enrollees are not collecting Social Security benefits, preferring to get rewarded with an approximate 8% annual increase in benefits for every year the start date is postponed.

So here’s the rub.  As your income rises, your cost of Medicare Part B premiums goes up.  In 2016, the maximum premium is $389/month, compared to the $104.90/month paid by most of us.  The top rate is slated to go to $467.20/month, for an increase of 20%.  So the government that reports to you an inflation rate of 0.2% (two-tenths of one percent) demands a 20% increase in the insurance they sell you “at gunpoint.”  For the rest of us, the $104.90 monthly premium is scheduled to increase to as much as $149/month.  Such a deal!

WHY?  Because the government wants those of you who are not covered by the “Hold Harmless” rule to pay for the rest of us.  Really!

Trust me when I say that I couldn’t make this stuff up, if you’ll excuse the grammar.

Allrighty then, what good am I if I can’t offer you a solution?  Unfortunately, my suggestion applies only to a distinct subset of American workers.  It is applicable only if you are going to be 65 or older in 2016.  But these people need to take a good look at filing for Social Security benefits by December of this year.  Once your benefits kick in, you join the “other 70%” and limit your increase to the Social Security COLA.  Last year, when the “Hold Harmless” rule was passed, I did exactly that, as last year was my 65th birthday year.  After calculating the small additional Social Security benefit I would have earned by waiting, when compared to the Medicare B premium cap, it was a no-brainer to simply file in 2015.  The permanent reduction in Social Security Benefits was negligible by comparison to the Medicare premium savings.

Everyone knows that it gets more difficult to live on a fixed income all the time, as prices for nearly everything constantly go up.  Yet, through government smoke and mirrors, the true rate of inflation has been hidden for decades.  The more you know, the more likely you are to be able to control some of the most important expenditures we all have to make.

If you would like to discuss these possibilities, call our office at 904-685-1505.