Earlier this year, we posted a Blog expressing our disgust at the way Cost-of-Living Adjustments (COLAs) are applied to certain government functions that affect most Americans. The Department of Labor is charged with the annual task of determining the net increase in overall prices we all pay. Their results are published as the Consumer Price Index or CPI.
Failure to realize an increase in overall income results in erosion of buying power. In any given year, far too few Americans realize a sufficient increase in income. This pattern has been endemic in our society for longer than the entire life of the Social Security System.
In 2023, Social Security monthly benefits were raised by 8.75%, despite inflation well in excess of that figure. In November of 2022, the government-reported annual rate of inflation hit a multi-year high of 11.1%. Social Security benefits covered only 78% of our price level increases, resulting in a reduction of purchasing power.
As bad as that sounds, it gets worse, as recently released numbers plainly depict. Despite a 4.1% increase in our daily living costs (reported CPI change for 12 months), Social Security has announced a 2024 COLA of only 3.2%, leaving recipients a (pre-tax) shortfall of 0.9%. As usual, that is only the tip of the iceberg. Misapplication of COLA adjustments in other aspects of our financial lives exacerbates the problem.
A large percentage of Social Security recipients are covered by Medicare. Whenever a Medicare participant is also receiving Social Security monthly benefits, Medicare premiums are deducted from benefits payments. Wouldn’t it be logical to assume that one inflation rate would apply to all government functions equally? In that case, Medicare premiums would also be increased by 3.2% for 2024, just like the reported CPI. But no, Medicare premiums are going up by 5.9%, leaving individuals to cover the extra 2.7%. One more decrease in our standard of living, compliments of “Uncle Sam.”
Adding proverbial insult to injury, higher-income Americans have long been subjected to surcharges for monthly Medicare premiums. Dubbed IRMAA, for Income-Related Monthly Adjustment Amounts, affected Americans will also find IRMAA costs rising faster than inflation.
But wait, there’s more! Medicare-covered payments (usually 80% of your actual costs) kick in only after an increased annual deductible amount has been met. In the coming weeks, the IRS will release many more “inflation adjustments,” and we will explain them to you.
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