Social Security Adjustment Analysis

The Social Security Administration announced earlier today that the millions of Americans receiving Social Security would not receive a cost of living adjustment for 2016. This is just the third time in the last 40 years that recipients did not receive a cost of living adjustment. The last two were in 2010 and 2011.

These increases link to the consumer price index (CPI). The CPI used is for urban wage earners and clerical workers (CPI_W). This takes into consideration the spending habits of working Americans. Falling gas prices and transportation costs account for the biggest reason for the CPI-W not increasing (I will leave the discussion of whether this is the right CPI measurement for another day)

According to the Senior Citizens League study, Social Security benefits grew by 43 percent from 2000-2015, while Medicare, Part B premiums grew by 131 percent. This same study says that senior citizens' buying power has dropped by 22 percent!
Most people have those premiums deducted directly from their Social Security checks.
Usually, when a CPI increase is added to your Social Security check, it offsets the increase in Medicare, Part B premiums. In years when it doesn't, most people (estimated at 70 percent) taking Social Security fall under the "hold harmless" provision which would prevent Medicare from increasing their premiums any more than the CPI-W. The remaining 30 percent face Part B premium increases of 50% or more, depending on your household income. The discussion of who is subject to these increases is beyond the scope of this
post.

Here are three good articles with specific Q & A that I encourage you to read:

Answers to readers' questions on Social Security COLAs and Medicare

A Sickening Increase in Medicare Premiums

Medicare Part B Premiums to rise 52% for 7 million enrollees

If you turn 65 in 2016, and are contemplating a Social Security optimization strategy that has you delay filing, consider the impact of Part B premiums before you decide. The increase may not apply to many who are currently taking Social Security or have applied and will receive benefits in November and December of this year. So if you file now, it could mean you are held harmless and spared the huge increase in Part B premium. Other conditions apply, so be sure to carefully analyze your situation.

A rule adopted by the Social Security administration in 2010 allows you to "redo" your claim if you apply for it within the first twelve months after you have filed. To complete the "redo", you would need to repay the amounts you received to Social Security . If the situation is favorable, you could then initiate the optimization strategy you planned prior to this announcement.

Consult the Social Security Administration before making any decision. They cannot tell you what to do, but they can tell you the rules. They usually get it right. You should also talk to your financial advisor to be sure your decision is in line with your overall financial plan.

If you turn 65 next year, time is short. Act now!

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