As you may have heard by now after there was no increase in Social Security Benefits for 2016 the government just announced that Social Security Benefits for 2017 will increase by a whopping .03%. What that means is that the average Social Security recipient who currently receives $1,355 a month in benefits will now see a $5 a month increase to $1,360. The government uses the consumer price index for urban wage earners and clerical workers (CPI-W) to determine the cost-of-living adjustments and since officially the inflation rate is low, the result is a very minimal increase in Social Security Benefits. In reviewing the Social Security adjustments, there are a couple thoughts that I think are important. The first deals with government numbers.
Officially, with the way the government computes inflation there is virtually no inflation in our economy. However, we all know the reality is that the price we pay for things is always on the rise. For example, the government may say there’s no inflation in food prices but I think most of us would agree that whenever we go to the grocery store it costs more than the time before. If you look at what it cost you to live a year ago and compare it to today I think most of us would agree that it costs us more. The only people who disagree with that are government economists. I bring this up because it is important to remember that government numbers don’t necessarily relate to you and me as individuals. Government numbers in and of themselves should not necessarily be relied upon when you and I are looking at our individual situations. The government has creative ways of computing things and it doesn’t necessarily reflect reality. A perfect example of this is the unemployment number. The unemployment number reported by the Labor Department doesn’t reflect the true employment picture in the country. After all, people who are underemployed, working part time when they want to work full time or have just given up looking for a job are not part of the unemployment numbers. Therefore, the unemployment number reported isn’t necessarily the true unemployment number. We have to recognize that while government’s numbers may be useful for government agencies, they are not useful for you and me as individuals. Therefore, when the government says there is virtually no inflation that may work for their use; it just doesn’t work for us. We know our cost of living is rising and no matter what the government says, we have to deal with it.
The other issue regarding the Social Security increase is how it could affect you with regard to Medicare premiums. Unfortunately, Medicare premiums are increasing at a greater rate than Social Security Benefits. Many may be worried because the great majority have their Medicare B premiums taken from their Social Security Benefits and they will see a net reduction in benefits. Fortunately, the majority of people don’t have to worry about this. A number of years ago Congress passed what is known as a hold harmless provision which basically says that Social Security Benefits cannot be reduced because of the increase in Medicare premiums. Therefore, most people don’t have to worry that their Social Security Benefits will be reduced because the Medicare premiums increase exceeds the cost-of-living adjustments. However, unfortunately that doesn’t apply to everyone.
As you may be aware of, Medicare B premiums are no longer the same for everyone. For those individuals who have higher income, they pay more for their Medicare B premiums. Unfortunately, the whole harmless provision does not apply to them. Therefore, it is possible for some people to find that their net Social Security check will be reduced in 2017 as a result of higher Medicare premiums.
Whether the government thinks there is inflation or not is relatively immaterial. We all know that our cost of living is constantly rising and we must plan for it. The reality of the situation is that pensions and Social Security do not keep up with the cost of living. That is why it’s always important, particularly when someone is collecting Social Security, to have a portion of their portfolio invested for growth in order to have the resources to adjust to your rising cost of living. As I’ve always told people, when it comes to retirement planning, one of the keys is to always make sure you have a rising income the rest of your life. Despite what the government thinks, we all know that it’ll cost us more to live next year than it does today.
Rick is a fee-only financial advisor. His website is www.bloomassetmanagement.com. If you would like Rick to respond to your questions, please email Rick at -.