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Social Security Benefits Increasing 2% in 2018

On Friday, it was announced that Social Security benefits are going to increase in 2018. The increase may seem small – just 2% - but it’s the largest increase in benefits for retirees since 2012. 

Social Security cost-of-living adjustments over 10 years

In many ways, this is good news. It means that cost of living and inflation are being recognized, and future Social Security benefits are more likely to keep up with the times. However, it will bring little change to those currently receiving benefits.

What’s going on, exactly?

The COLA for Social Security benefits is decided based on changes in the Consumer Price Index (Don't worry, I won't bore you with the details). The 2% increase will equate to roughly an extra $25/month for those receiving benefits next year. Increased benefits kick in starting January 2018. In the past, cost-of-living adjustments (COLA) have been very small. For example, in 2017, the COLA increased 0.3%. Hardly anything to write home about.

What about Medicare?

It’s important to understand that, while this increase can be useful, it isn’t the only thing that impacts your Social Security benefits. As the annual cost of living continues to rise with inflation, the small 2% increase may not make a huge difference. This is especially true for those enrolled in Medicare.

Unfortunately, many retirees receiving benefits may not see the COLA reflected in their social security checks. Instead, it will likely funnel into higher Medicare premiums. Currently, Part B premiums are designed to cover 25% of Medicare’s costs. This 25% estimate comes out to be about $134/month.

There is a “hold harmless” stipulation that protects those enrolled in Medicare against premium increases. As of now, it’s expected that Medicare Part B premiums will stick at an average of $134/month. But due to the hold harmless provision, most Medicare recipients only pay an average of $109/month for their Part B premiums. This isn’t enough to cover the anticipated 25% of total medical costs (which is what Part B premiums are supposed to do).

As a result, the extra 2% increase that Social Security recipients expect to see in 2018 will likely go directly to paying the remaining balance of their Part B premiums.

How will this change impact me?

If you’re a Medicare recipient who receives Social Security checks, it’s entirely possible that you won’t notice a difference. The extra 2% COLA you’ll receive in your checks could go straight to paying higher Medicare premiums – leaving you no worse or better off than you were before the COLA for 2018 takes effect in January.

If you ever have any questions about your Social Security benefits, or how your Medicare premiums are paid, please don’t hesitate to give me a call at (785) 256-9150 or schedule your FREE initial consultation. I’d love to walk you through the process, what these changes mean for you specifically, and how you can get the most out of your benefits in retirement.

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Desmond Henry, a financial advisor in Topeka, KS

Desmond Henry is a fee-only CERTIFIED FINANCIAL PLANNER™ professional and founder of Afflora Financial Life Planning in Topeka, Kansas. He helps the retiring/retired plan their finances and invest their money. CLICK HERE to learn more.