Here's why the 2.8% increase in Social Security in 2019 is a joke

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "If you have not heard yet, Social Security Recipients will get a 2.8% increase in their monthly checks next year, but do not be too excited because this increase is based on past inflation rate, which means that retirees are already spending the increase on more and more expensive goods and services. Worse, given that many beneficiaries underpay Medicare Part B premiums due to the harmless provision of Social Security, much of the increase next year could be paid to Medicare rather than the portfolio of their beneficiaries. "data-reactid =" 11 "> If you have not heard it yet, Social Security recipients will increase their monthly checks by 2.8% next year.Do not be too excited because the increase is based on past inflation rate, which means that retirees are already spending the increase on more and more expensive goods and services. Worse, given that many beneficiaries underpay Medicare Part B premiums due to the harmless provision of Social Security, much of the increase next year could be paid to Medicare rather than the portfolio of their beneficiaries.

What is the story?

Millions of Americans depend on social security for more than half of their retirement income. Social security is therefore an essential financial safety net for the elderly in the United States.

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The program is designed to replace about 40% of the average worker's early retirement income. Every year, Social Security analyzes the numbers to determine whether an increase in the cost of living is justified because of inflation or the rising cost of goods and services. services.

Specifically, Social Security compares the third quarter average consumer price index for employees and urban office workers (CPI-O) with the average for the third quarter of the year in which a increase in COLA had been granted. Because the beneficiaries received a 2% COLA increase in 2018, Social Security compared the CPI-W from the third quarter of this year to the third quarter CPI-W of the year. last year.

The comparison revealed that the average worker's costs increased by 2.8% over the last year. Social security beneficiaries will see their monthly income increase by the same amount in 2019.

The problem, however, is that the cost of living calculation is a retrospective calculation of the cost of goods and services. Although costs may decrease, as during a recession, they generally increase, not down. If inflation increases in 2019, the income of the elderly will remain behind, despite the increase of next year.

People held harmless catching up game

Social Security recipients who pay their Medicare Part B premiums directly from their Social Security checks are eligible for the reserve clause, a provision that prevents Part B premiums from growing more. quickly (in dollars) as social security checks.

In recent years, social security COLA increases have been lower than those of Part B premiums, so millions of Americans pay less monthly premiums than expected. Unfortunately, keeping the shelter is a temporary respite, so that beneficiaries must catch up whenever Social Security grants an increase in COLA. In 2019, Medicare Part B premiums rise to $ 135.50 per month. So, anyone who pays less than that will see at least a portion of his increase in COLA's Social Security going to Medicare rather than to an inflation-off.

The harsh reality is that COLA is going down

The current calculation for attributing COLA increases is based on the prices paid by workers for goods and services, and workers do not spend their money on the same activities as older people. For example, workers spend more money on transportation and clothing, while older people spend more money on health care.

The big problem is that health care inflation has risen much faster than COLA's since 2000, so the purchasing power of retirees has steadily declined. According to the Senior Citizens League, social security contributions have increased by 46% since 2000, but average retirement spending has almost doubled over the same period. As expenses grow faster than COLA, the average retiree's purchasing power has decreased by 34%, including a 4% decline in 2017.

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