The Social Security Administration recently announced the COLA for 2018 will be 2 percent. For someone receiving $2600 in Social Security benefits (near the top of the range), this will amount to $52 a month, bringing their total benefit to $2652. However, as you will see in the details below, beneficiaries will not be able to keep all of that increase.
For someone currently receiving the average benefit of $1330 a month, their COLA will amount to approximately $26.60, raising their monthly benefit to $1356.60. Unfortunately, typical beneficiaries will only be able to keep a tiny portion of that increase.
While receiving any increase in income sounds positive, the truth is that most retirees should not expect to see a meaningful net increase in their Social Security benefits in 2018. This is because the amount which will be deducted for Medicare premiums is expected to rise to $134 a month. Many current Medicare beneficiaries only pay between $109 to $112 a month.
If your Social Security benefit is so low that deducting $134 a month would actually reduce the size of your current benefit check, then the Medicare premium will be adjusted so you will not pay the full amount until your Social Security benefit is high enough in the future to absorb the full $134, and that is assuming Medicare premiums do not rise more in future years.
Below are details of the above examples:
If your Current Social Security Benefit is $2600 a month:
Current Social Security: $2600.00
Current Medicare cost: -112.00
Current Income: $2488.00
2018 Social Security: $2652.00
2018 Medicare cost: -134.00
2018 Income: $2518.00
Net extra income is $30 a month
If your Current Social Security is $1330 a month:
Current Social Security: $1330.00
Current Medicare cost: -109.00
Current Income: $1221.00
2018 Social Security: $1356.60
2018 Medicare cost: -134.00
2018 Income: $1222.60
Net extra income is $1.60 a month
Obviously, the exact amount you will receive in your 2018 checks will depend on what you currently receive and whether or not you have your Medicare deducted from your Social Security benefits. (About 30 percent of beneficiaries do not have Medicare deducted from Social Security, either because they participate in a public employees pension plan instead of Social Security or because they have delayed collecting their Social Security benefits). However, it is important to note that no matter how much Social Security you currently receive, your 2 percent COLA is likely to be much less significant than what you probably hoped to receive in 2018.
If you have a high income, which is defined as $85,000 for an individual or $170,000 for a couple, your Medicare premium will be even higher than $134.
You can get more details about how things will change in 2018 at medicareresources.org.
Expect Additional Increases in Medicare Co-Pays and Drug Prices
In addition to higher Medicare premiums, beneficiaries may also pay higher Medicare co-pays and drug prices, depending on their plan. Annual maximum out-of-pocket expenses could rise for some beneficiaries, as well. Check your Evidence of Coverage schedule from your plan administrator to see how you will be affected.
If you have a Medigap plan, you could also pay higher premiums for your extra insurance, depending on your specific plan and insurance carrier.
The bottom line is that most Social Security recipients will continue to see their net income fall behind the rate of inflation, since any small amount they may receive is unlikely to be enough to offset the higher cost of food, utilities, automobile fuel and other necessities in 2018.
Once again, Social Security recipients should expect to do more belt tightening.
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Watch for my book, Retirement Awareness: 10 Steps to a Comfortable Retirement, due to be released by Griffin Publishing in 2018.
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