COLA or No COLA Part I

October 2016 Newsletter

The Social Security Administration (SSA) announced a .3% cost of living adjustment (COLA) for 2017 Social Security Retirement Benefits. Popular media is widely broadcasting this news while bemoaning the paltry increase. The headlines are missing the real story. According to the SSA, the current average annual Social Security Retirement Benefit is approximately $15,660.  A .3% increase equates to about $47 per year. Within the next month, the Centers for Medicare & Medicaid Services (CMMS) will announce the 2017 cost increase for Medicare Part B Premiums. Since most retirees have these Part B premiums deducted from their Social Security Benefit, a Part B cost increase of just 4%, would equate to $50 per year for most Part B enrollees, completely wiping out the Social Security Benefit COLA. This is the real story.

Most Americans are protected by law from a Medicare B increase actually decreasing their Social Security Benefit but the law does not say the COLA cannot be completely erased.  So, what level of inflation should we expect to see for Medicare B premiums?  The 2016 Medicare Trustee report estimates a 22% increase.  Last year a 52% increase was whittled down to 16% by congress. The historic average since the mid 1960s is close to 8%.   A 4% number looks pretty certain. You can plan on the announcement being made after election day.  Political wrangling to preserve the $47 will follow.

Another key consideration is retirees with over $85,000 in modified adjusted gross income ($170,000 for married tax filers) should know that their Social Security Benefit is not protected from a Part B increase wiping out the COLA and reducing their Benefit.

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The information in this presentation is provided as a general overview. It is derived from the Internal Revenue Code, and other government publications, all subject matter sources reasonably believed to be reliable.  Tax law and the laws governing Medicare/Medicaid are complex and subject to change.  Clients should consult with their attorney and/or qualified tax advisor when making decisions regarding these matters.

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