It's official! Social Security beneficiaries get a big raise in 2019 – The Fool Motley

I will not keep you in suspense: social security checks will be 2.8% bigger in 2019. This is good news for retirees, but there are important points that every Social Security recipient must take into account about this increase. This includes the fact that some retirees might not see the total amount of the increase reflected in their checks, and the cause of this increase could indicate that retirees are not making any real progress in financial security despite the fact that they are not paying more. increase in their income. .

How social security determines annual increases

Every year, Social Security Number Controllers assess the annual change in prices of various goods and services using the Consumer Price Index for urban employees and office workers (CPI-). W). A measure of inflation, the CPI-W is designed to represent the cost of living of a typical US employee.

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Specifically, Social Security compares CPI-W's monthly readings for the third quarter with those of the third quarter of the last year in which an increase in social security was granted. If the CPI-W is greater than it was during the previous period, Social Security beneficiaries get an increase equal to the percentage change in the index. This is called the cost of living adjustment (COLA). If the CPI-W is lower than the previous period, the social security income remains unchanged from the previous year.

For example, the average CPI-W in the third quarter of 2017 was 2% higher than in the third quarter of 2016 (the last year a COLA was granted), so that social security beneficiaries benefited. from an increase of 2%. income this year.

This year, the CPI-W has further increased. As you can see in the table below, the average readings in the third quarter of 2018 were 2.8% higher than those for the third quarter of 2017, so that social security recipients will benefit from a higher rate of return. 2.8% increase from January.

Data source: Social Security Administration.

Do not be too excited for the moment

The increase is important because social security accounts for more than 50% of retirement income for about half of married couples. However, although the 2.8% increase in social security COLA is the largest allocated since 2011, it will not add much money to the average annual income of beneficiaries.

Since August 2018, the monthly Social Security Statistical Statement indicates that the average retired worker receives $ 1,415.94 in monthly payments. This means that typical retirees will see their monthly check climb by $ 39.64 and their annual commute increase by $ 475.76. Do not get me wrong, no one will complain about $ 500 more each year. But it's far from an increase that changes life.

There is also a health insurance to consider. Many social security beneficiaries see their Medicare Part B premium levied directly on their Social Security payment. Medicare premiums also increase each year, but their increase is not determined by the CPI-W. Instead, Medicare increases are dependent on health care costs that have historically grown much faster than the prices of other goods and services, which means that premium increases can significantly reduce benefits. COLA Social Security Annual Report.

Source of the image: Getty Images.

For example, the increase in Medicare Part B premiums has allowed more than 40% of seniors to get an increase of $ 5 or less in their Social Security earnings in 2018, despite a COLA 2%, according to the Senior Citizens League. Due to health insurance premiums, only 7% of respondents saw a monthly increase in stroke greater than 25 USD.

By 2019, more people are expected to receive more of their benefits than this year, as this year has been significantly impacted by the non-binding provision of Social Security, a rule that prevents Medicare Part B premiums from increasing more than the amount of social security COL. There was no increase in COLA Social Security in 2016 and, in 2017, the increase in COLA was minimal. It is therefore only in 2018 that many Social Security beneficiaries have really been able to "catch up" with the current premium for Medicare.

The Medicare Part B premium will increase by approximately 1.1% to reach $ 135.50 per month in 2019. Therefore, if you pay less than this amount, your Social Security checks could be smaller than expected next year. According to Medicare, the hold-harmless rule will still affect 2 million beneficiaries by 2019.

Social security beneficiaries also need to bear in mind that their increase in the cost of living is based on inflation, which simply means that it simply indicates how much they are paying for the same goods and services they are paying for. a year ago. As a result, beneficiaries do not earn real dollars because of their COLA. Even worse, because the COLA Social Security is based on workers, not on retirees, it does not really reflect the inflation that older people are facing, especially because older people spend a lot more in health care than their younger, active counterparts. Due to soaring costs for seniors, the purchasing power of retirees has decreased by 34% since 2000, according to the Senior Citizens League.

Overall, the good news is that social security payments will increase as much as possible in 2019, but beneficiaries may not want to be too enthusiastic about it.