What is the Social Security COLA?
Each year Social Security recipients receive an increase in their benefits to help combat inflation. This is known as a cost of living adjustment, or COLA.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is reviewed in October of each year, and the COLA for the next year is announced. Benefits are then increased in January to reflect the higher CPI.
The COLA was made automatic in 1975, so retirees have seen an increase in their benefits every year since then.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is reviewed in October of each year, and the COLA for the next year is announced. Benefits are then increased in January to reflect the higher CPI.
The COLA was made automatic in 1975, so retirees have seen an increase in their benefits every year since then.
Highest Increase in Years (in 2009)
Social Security recipients received one of the highest increases in their retirement benefits since the 1980s. Too bad that increase may have to last them a few years.
Thanks to skyrocketing gas prices in 2008, retirees saw their Social Security benefits increase by 5.8% beginning in January 2009. This was very unexpected, and much higher than the average 2.8% that we have come to expect.
As a result of this unusually high increase, the Congressional Budget Office (CBO) expects 2010 through 2012 to see no increase in benefits.
Thanks to skyrocketing gas prices in 2008, retirees saw their Social Security benefits increase by 5.8% beginning in January 2009. This was very unexpected, and much higher than the average 2.8% that we have come to expect.
As a result of this unusually high increase, the Congressional Budget Office (CBO) expects 2010 through 2012 to see no increase in benefits.
No COLAs For a Few Years?
Part of the Social Security law states that no COLAs may be given until the CPI-W is higher than the level at the time of the previous cost of living adjustment.
Since the CPI-W has gone down (thanks to lower gas prices), and it is not expected to go back up to the level it was at in 2008 until the year 2011, Social Security recipients may have to wait that long for their next increase.
Since the CPI-W has gone down (thanks to lower gas prices), and it is not expected to go back up to the level it was at in 2008 until the year 2011, Social Security recipients may have to wait that long for their next increase.
Rising Medicare Premiums and the Hold Harmless Rule
Social Security recipients noticed something else rising besides just their benefits... Medicare Part B premiums have also been on the rise.
But there is good news for people who have their premiums deducted directly from their Social Security benefits. There is a provision called "hold harmless" that protects most recipients from having their benefits decline if Medicare premiums rise faster than benefit increases.
That means that even if Medicare premiums increase faster than your retirement benefits, your Social Security check will not go down.
But there is good news for people who have their premiums deducted directly from their Social Security benefits. There is a provision called "hold harmless" that protects most recipients from having their benefits decline if Medicare premiums rise faster than benefit increases.
That means that even if Medicare premiums increase faster than your retirement benefits, your Social Security check will not go down.
From the Social Security Retirement Income Blog...
- Social Security Eligibility: How to Qualify for Social Security | Social Security Retirement Income
- While millions rely on Social Security in their retirement years, not everyone qualifies. Here are some guidelines regarding Social Security eligibility:
- Getting the Maximum Social Security Benefits | Social Security Retirement Income
- Now that you understand a little more about how Social Security works, and how important this income stream can be to your retirement, here are some tips to help you get the maximum Social Security benefit you are entitled to:
- What is Social Security? | Social Security Retirement Income
- Social security programs first appeared in Europe in response to families moving from farming to working for others as the world became industrialized. Germany established the first social security program way back in 1889.
High Income Earners Pay Greater Share of Medicare Premiums
However, the "hold harmless" provision does not apply to new Social Security recipients, Medicare participants who are not yet receiving Social Security benefits and high income people.
If you happen to fall into one of these groups you'll see higher Medicare premiums to make up for the participants who are covered under the "hold harmless" provision.
While this may not be fair, it wasn't exactly the intent when the "hold harmless" rule was created. However, it was also never expected that Social Security benefits would not receive a cost of living adjustment either (COLAs were made automatic in 1975).
If you happen to fall into one of these groups you'll see higher Medicare premiums to make up for the participants who are covered under the "hold harmless" provision.
While this may not be fair, it wasn't exactly the intent when the "hold harmless" rule was created. However, it was also never expected that Social Security benefits would not receive a cost of living adjustment either (COLAs were made automatic in 1975).
The Medicare Modernization Act
The reason high income earners will see higher Medicare premiums is due to the Medicare Modernization Act, which will be completely phased-in this year.
This act basically says that high income beneficiaries will pay a larger portion of the cost of Medicare, based on their income.
While this act is not the focus of this article, the combination of the Medicare Modernization Act with no COLAs for Social Security retirement benefits could mean smaller Social Security checks for people above certain income levels for the next few years.
This act basically says that high income beneficiaries will pay a larger portion of the cost of Medicare, based on their income.
While this act is not the focus of this article, the combination of the Medicare Modernization Act with no COLAs for Social Security retirement benefits could mean smaller Social Security checks for people above certain income levels for the next few years.
The True Meaning of Fixed Income
Bottom line, if you're collecting Social Security you're going to learn the true meaning of "fixed income" over the next few years.
The best way to prepare is to watch your spending and to try to build up a cushion for the next few years if possible.
High income earners should also coordinate their tax and financial planning strategies to avoid a spike in income which could then trigger higher Medicare premiums. These strategies need to be carefully planned and coordinated so that your increase in Medicare costs don't outweigh the benefits of the planning strategies.
The best way to prepare is to watch your spending and to try to build up a cushion for the next few years if possible.
High income earners should also coordinate their tax and financial planning strategies to avoid a spike in income which could then trigger higher Medicare premiums. These strategies need to be carefully planned and coordinated so that your increase in Medicare costs don't outweigh the benefits of the planning strategies.
What Questions Do You Have About Social Security?
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- mary111 mary111 Aug 26, 2009 @ 8:45 pm
- I have been collecting Social Security for three years. I will be 65 in 2010 and get Medicare. Will my premiums be under the hold harmless clause, or will I be in the group that pays more?
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