Retirees will finally start to see more money in their Social Security benefits next year, after years of record low inflation. The Social Security Administration recently announced a 2.8% cost-of-living adjustment (COLA) effective January 1, 2019. That’s the highest COLA since 2012, and higher than many recent retirees have ever seen. Since 2013, COLAs have averaged just 1.2%.
A COLA of 2.8% will increase the average retirement benefit of $1,400 by $39.20 per month in 2019. Just as importantly, Medicare Part B premiums, which are automatically deducted from Social Security benefits, are expected to increase by only a very small amount. In June, the Medicare Trustees forecast that the base 2019 Part B premium for individuals with incomes under $85,000 would be $135.50/mo. That’s just $1.50/mo. more than this year. Although the current base premium today is $134/mo., many retirees are paying less than that amount, due to a special provision of law called the “hold harmless provision.”
The hold harmless provision applies to about 70% of retirees, and is triggered when the dollar amount of the increase in an individual’s Part B premium is greater than the dollar amount of the increase in their COLA. The law requires that when this occurs, the individual’s Part B premium be reduced to prevent reductions to Social Security benefits from one year to the next. While this protects Social Security benefits from reduction, it also means that benefits remain unchanged or relatively flat until a year in which the COLA increases benefits enough to exceed the Medicare Part B premium increase.
To improve the adequacy of Social Security benefits, The Senior Citizens League supports legislation that would strengthen the COLA in three ways:
- Calculate COLAs based on the consumer price index that better reflects the spending patterns of retirees - the Consumer Price Index for the Elderly (CPI-E).
- Provide a modest boost in monthly benefits to retirees to make up for years when no COLA or only a negligible COLA was payable.
- Guarantee a minimum COLA of no less than 3 percent.