Good news for those who are collecting Social Security: Your monthly checks likely will be bigger next year.
The Social Security Administration generally announces its cost-of-living adjustment in October.
The Senior Citizens League, a nonpartisan organization, keeps an ongoing estimate of what that increase could be. The latest estimate — excluding September — pegs that increase at 2.8 percent. For those collecting the average Social Security benefit of about $1,400, that would mean an extra $39 a month.
If that does not change between now and October, that will be the highest bump retirees have seen in recent years.
In 2018, the cost-of-living adjustment increased by 2 percent, though for many that increase was eaten up by higher Medicare premiums.
In 2017, the cost of living adjustment was just 0.3 percent, while in 2016, it was zero.
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Cost-of-living adjustments are aimed at ensuring that benefits keep up with inflation.
The adjustments are calculated each year using the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.
That index is based on the buying habits, including goods and services, of workers who are under 62 years old.
The cost-of-living adjustment for 2019 could still change, according to Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League.
"There is a chance it could be slightly lower than 2.8 [percent] and that's complicated by hurricanes," Johnson said.
That's because the 12-month average inflation rate has recently been in a downward trend, she said. But hurricanes tend to drive up costs, and therefore the cost-of-living adjustment. Those two forces will likely cancel each other out, Johnson said, making a 2.8 percent increase "probable," according to today's outlook.
What it means for you
"This will be the first year that a lot of people, a lot of the newly elected folks on Social Security, will actually experience [an increase]," said Joe Elsasser, president of Covisum, a provider of Social Security timing software.
For baby boomers who have larger Social Security checks than average, this will result in a "real increase," Elsasser said.
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Those with lower benefits — such as people receiving spousal benefits — always face the risk that their Medicare premium will offset any Social Security increase, Johnson said. Spousal benefits pay half of your significant other's benefit, provided you have been married for at least 10 years and they are eligible for Social Security based on their work record.
Consider Medicare
While for many, the costs of Medicare premiums erased the boost Social Security saw in 2018, that is unlikely to happen again this year, Johnson said.
The cost of Medicare Part B premiums is deducted from Social Security payments every month, provided you are receiving benefits. There is a rule — called the hold harmless provision — that prevents the amount of your previous year's benefit from getting decreased because of Medicare premium costs, though there are exceptions.
The Medicare Part B premium for 2019 will not be announced until after the Social Security Administration announces the cost-of-living adjustment in October. The most recent estimates indicate those premiums for many recipients will cost $135.50 in 2019.
How far your benefits go
One problem that the CPI-W index tends to overlook is the rising cost of health-care services and prescription drugs have on retirees, Johnson said. While the CPI-W estimates that individuals are spending about 7 percent of their household budgets on those expenses, older individuals are paying closer to 14 percent to 15 percent, Johnson said.
Because of that, The Senior Citizens League is advocating for legislation that would instead base cost-of-living adjustments on the Consumer Price Index for the Elderly, or CPI-E.
"Tying the cost of living adjustment to the CPI-E would modestly increase the COLAs that people would receive," Johnson said.
While the change would cost the program more, it could be paid for by raising the maximum amount of wages subject to taxation, Johnson said.
