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Inflation, Medicare will cut Social Security’s cost of living adjustment

Luu Quang Nguyen | China News Service | beautiful pictures

News that inflation rose to historic highs in November should come as no surprise to retirees.

But they could be in for another shock when they get their monthly Social Security check in January.

The Social Security Administration announced in October that beneficiaries will receive a Up 5.9% into their checks in 2022 – the largest annual cost-of-living adjustment in four decades.

Since then, however, another key measure for inflation – the Consumer Price Index – has also hit historic highs.

In November, that measurement for a basket of consumer goods and services increased Up 6.8% over the same period last year – highest since 1982.

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“In the beginning, people were more, ‘Well, look at this great,’” said Kelly LaVigne, vice president of consumer insights at Allianz Life Insurance Company in North America. how great”.

“It’s a recognition now, after they saw this latest CPI news, ‘Oh, that’s why they did it,'” LaVigne said.

For retirees who have lived on a fixed income for a long time, higher prices can affect their ability to pay for rent, food and prescription drugs.

“They haven’t even received this larger check yet,” LaVigne said. “So they’re going through these higher prices without even getting more money, which will start in January.”

More than 64 million Social Security recipients have to increase their monthly check amounts.

The estimated average monthly benefit for all retired workers will increase to $1,657, up from $1,565 – a $92 increase.

Just how much more will show up in the monthly check could also be affected by something else – increased Medicare Part B premiums.

The standard Part B premium for 2022 will be $170.10, a 14.5% increase from $148.50 this year.

Part B premium payments are usually deducted directly from the payee’s monthly check.

Exactly how much people will have to pay varies according to their tax return status – married or single – as well as how their revised adjusted gross income was reported on the tax return. theirs two years ago.

Paying premiums related to income? Hello IRMAA

Ed Jones | AFP | beautiful pictures

A rule called a harmless hold provision protects beneficiaries from having their benefits reduced from one year to the next due to increased Medicare Part B premiums.

But people pay premiums related to that unprotected income. Those beneficiaries pay the standard premium plus a surcharge known as the Income-Related Monthly Adjustment Amount, or IRMAA.

In 2022, individuals with incomes over $91,000, and married couples over $182,000, will have to pay an additional fee.

According to Mary Johnson, Medicare and Social Security policy analyst at The Senior Citizens League, most people will have a cost-of-living adjustment high enough by 2022 that their benefits won’t be reduced by payments. premium payment Part B premium group nonpartisan.

About 11.3% of Medicare recipients report that their net Social Security benefit in 2021 is less than it received in 2020, according to a survey conducted by the group.

Typically, an estimated 7% of beneficiaries are affected by IRMAA, Johnson said.

Higher Medicare Part B premiums tend to decrease cost-of-living adjustments over time, according to recent research from the Center for Retirement Research at Boston College.

According to calculations by the Center for Retirement Research, over 30 years, the average total Social Security benefits could increase by 89% – to $3,600, up from $1,900. But once the Medicare Part B premium is included, the net benefit will only increase by 60% – from $1,750 to $2,800.

Furthermore, federal income taxes can also eat away at the benefits. Beneficiaries with combined income above certain thresholds — starting at $25,000 for individuals or $32,000 for couples — can pay taxes on up to 85% of their benefits. (Combined income includes adjusted gross income, non-taxable interest income, and half of Social Security benefits.)

According to the Center for Retirement Research, because tax thresholds are not adjusted for pay or price increases, more beneficiaries are taxed on their benefits over time.

Retirees facing higher costs should have a strategy to ensure that the doctors they see and the prescriptions they buy are covered by their Medicare plans, Johnson said.

In addition, by consulting with a tax advisor, they can assess how increasing withholding from their Social Security benefits or paying estimated quarterly taxes could help them avoid a big tax bill later on, she said.

https://www.cnbc.com/2021/12/14/inflation-medicare-will-cut-social-security-cost-of-living-adjustment.html Inflation, Medicare will cut Social Security’s cost of living adjustment

Emma James

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