Social Security COLA for 2018: Is It All Good News?

Update 10/13/2017: The Social Security COLA for 2018 has been announced at 2 percent.

Right about now, retirees and Social Security recipients are anxiously awaiting the Social Security Administration (SSA) announcement of what might be a Cost of Living Adjustment (COLA) (if there is one) for 2018. I say “if” because as we have seen in recent years, the COLA adjustment hasn’t always been there for the many who depend on it to survive in a very costly 21st century world. So, will it be all good news?

It sounds like Social Security will announce a COLA (cost of living adjustment) for 2018, but is it all good news? Check out the reasons it might not be.

Social Security beneficiaries have lost almost one third of their buying power since the year 2000 as the cost of things purchased by these recipients, typically the elderly, have continually outpaced any inflation adjustments made by the government and the SSA according to a recent report by The Senior Citizens League (TSCL).

Recent History

Social Security inflation adjustments have averaged only 1% since 2012, including no increase in 2016. COLAs are based on increases in the CPI-W, which measures price inflation for urban workers, from the third quarter of the prior year to the corresponding quarter of the current year. The SSA will make its official announcement about next year’s COLA for 2018 in October. The ever-creeping inflation over the past 12 months may wind up having a silver lining.

Projecting the COLA for 2018

With the Consumer Price Index (CPI-W) data collected through July of this year, the consumer advocacy group TSCL estimates that the Social Security cost-of-living adjustment for 2018 will be about 2.0%.

That means that the average retired beneficiary who currently gets $1,360 a month in benefits would see an increase of $27.20 a month in the funds. But, don’t pop the cork and celebrate just yet!

Even though that is significantly higher than the paltry 0.3% increase of this year, it’s not quite the time to start celebrating! Keep in mind that the 2018 estimate could change between now and the mid-October announcement since there is still data to be calculated. But, the trend is clear: inflation is picking up and seniors are suffering and that $27.20 isn’t going very far.

Here’s another major glitch in the situation. For most beneficiaries, Medicare Part B premiums are deducted from the monthly Social Security amount. The effect of that will vary for different individuals but overall, it will decrease the amount of any increase in the COLA adjustment since Medicare costs will be increasing in 2018. There are a somewhat complex set of rules for determining how much and for whom those Medicare rates will rise this year as compared to last year, but in general, most people will see a reduction in the net COLA increase from Medicare increased premiums.

Sounding the Alarm Bell!

Here is an alarming statistic. Since 2000, Social Security benefits increased 43% while typical senior expenses, as calculated by TSCL’s annual buying power report, have jumped 86%. The survey found that a person having the national average Social Security benefit of $816 per month in 2000 would have had $1,169.80 per month by 2016 due to the automatic COLA increases in those years. But because retiree costs have risen substantially faster than the COLA, that individual would require a Social Security benefit of $1,517.80 per month in 2017 just to maintain his or her 2000 level of buying power.

The Real Reduction in Buying Power

“Beneficiaries have just 70% of the buying power they did in 2000, making it more difficult for retirees, particularly those who have been retired the longest, to afford necessities such as medical care, food and housing,” the TSCL study found.

When costs climb more rapidly than benefits, retirees must spend down retirement savings more quickly than expected. Those without savings or other retirement income are either going into debt or simply going without what they really need to stay healthy and happy.

More than 60 million people received Social Security benefits last year. Of those 60 million, more than 70% of those were retired workers and their spouses and children, according to the SSA. About 10% of beneficiaries were the survivors of deceased workers and the remaining 18% were disabled workers and their families.

Even Millionaires Should Still Be Concerned

Even high-income retirees rely on Social Security for a substantial portion of their income. For nearly a third of investors with net worth of $100,000 to $1 million (excluding their residence), Social Security actually accounts for at least half of their monthly income.

Senior advocacy groups, including TSCL, argue that when it comes to measuring inflation experienced by retired and disabled individuals, the government is using the wrong index. The CPI-W used gives less weight to medical care and housing costs—two categories that have experienced rapid inflation and represent a larger portion of the budgets of older households than younger workers.

Medicare Premiums

Medicare Part B monthly premiums have risen 195% to $134 in 2017 from $45.50 in 2000 and average out-of-pocket costs for prescription drugs have increased 184% to $3,132 in 2017 from $1,102 in 2000. The average monthly premium for supplemental Medigap insurance has increased 122% to $264.45 per month in 2017 from $119 per month in 2000, according to the study. Overall, average medical out-of-pocket expenses for people age 65 and up are nearly double today compared to 2000, rising from $6,140 per year to $12,125 per year.

Higher-income retirees, defined as single individuals with incomes that top $85,000 and married couples with joint incomes over $170,000, pay a higher monthly premium for both Medicare Part B, which covers doctors’ fees and out-patient services, and Part D, which covers prescription drugs.

Those higher-income retirees subject to monthly Medicare surcharges may be in for a shock next year. New income brackets, based on 2016 tax returns, take effect in 2018. As a result, retirees who currently pay a high-income surcharge could pay even more next year, even if their income remains the same.

Dazed and Confused (with apologies to Led Zeppelin)

Sometimes all of these numbers just become a confusing whir circling around your brain and you may be tempted to just throw your hands up in the air and give up trying to understand it all. The bottom line though is fairly simple. COLA isn’t keeping up with inflation and it means bigger problems for everyone as we wander down the road to our retirement.

The average cost of medical care in the US is more than double the average COLA increases each year and that is projected to continue for a very long time. We all know who that affects most: the older, retired beneficiaries and the disabled.

A couple retiring this year at age 65 will pay 59% of all of their collected Social Security benefits towards health care in their remaining lifetime. That same couple now at age 55 and retiring in 10 years will pay 92% of all of their collected benefits towards their health care according to Healthview Services.

Final Thoughts

With all the writing about “early” retirement goals and “active” seniors who exemplify that 65 is the new 40, you have to be real here. The trends in healthcare costs provide some real evidence that working longer can really help deal with that trend. Working longer and building your SS income calculation, taking your benefits at full retirement age and not at a reduced amount due to retiring early, even keeping part of your portfolio invested in the stock market will help you stay ahead of inflation in retirement and be more able to cope with the problem. And one more thing, staying as healthy as possible now coupled with remaining active and stimulated by your work can help too.

Is this year’s COLA going to make a difference for you or your loved ones? Have you been thinking retirement and about Social Security and Medicare? Does spending almost all of your Social Security benefits on healthcare frighten you? One last thing, are you into Led Zeppelin like I am?

Disease Called Debt

About Gary Weiner @ Super Saving Tips

Over the last 45 years I've worked in retail (department stores and supermarkets) and financial planning. In addition, I am a shopper, born and bred, who enjoys the challenges of finding the best items for the best prices. When I'm not busy saving money or writing here at Super Saving Tips, I enjoy baseball, music, and classic movies. I am retired and live in New Jersey with my wife.
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11 Comments

  1. If people are really concerned about their SS benefits – and haven’t filed to claim them yet – then the real game-changer is waiting. Forget the potential 2% COLO and go for the 8%+ gain each year past your FRE. That’s serious money. For my generation that means 24% (!!) more in monthly SS benefits. That’s huge!
    Brad – MaximizeYourMoney.com recently posted…5 Reasons Your Investments Are Performing Below AverageMy Profile

    • It would be great for people to wait to FRE or even beyond if it’s possible. Unfortunately there are a lot of people who can’t do that primarily because of their health, as it was in my case. There is a break-even point for me, having started at 62. And that comes when I’m 78. After that, that’s when I’ll feel the pinch of retiring early and begin missing out on that extra benefit. Your point is well taken though and I hope that you and others will be able to wait. Thanks for your comments.

  2. Wow, Gary, those are some sobering stats. And with social security projected to get cut in the future, we younguns may actually be paying more in medical costs than social security. There’s no question that our current health care system needs reforms that make it less crippling for consumers.
    Emily @ JohnJaneDoe recently posted…Selling to a Scrapyard: How I Made $25 Cleaning Up My Own Back YardMy Profile

    • Unfortunately, Emily, it is a pretty scary prospect and right now there doesn’t seem to be much of a solution on the horizon. We can only hope that congress can come to some compromise agreements to improve the healthcare system and certainly protect Medicare and Medicaid. Ultimately, it’s going to be up to Americans themselves to make sure they can afford healthcare by preparing while they’re still healthy.

  3. These statistics spell out the nightmare that most of us on the bloggosphere are trying to avoid. It really does sound like a gathering storm. People have extremely different experiences of “the golden years” – and financial health (as well as physical health) plays a huge part in determining it.
    As for Zeppelin, I was never a big fan, but I really liked Carouselambra : )

    • It seems we’ve been debating what to do to protect seniors for decades now. As I said in the post, I don’t have many answers, but it certainly does make the future look pretty scary for those who don’t have the funds to take care of themselves in retirement. Thanks for your comments.

  4. Part of the agreement with the company that my husband retired from requires him to get SS at 62. His pension gets cut by the amount of SS he earns. So there is no waiting any longer for us. You have some great information that we’ll need to know about in the near future.

  5. I have stopped my membership for aarp. I am 67 and am on SS.I watch news 3 to 4 hours a day. I only remember aarp comming up once in the past year and a half on any news channel. And it was so not relevative to ANYTHING.
    We receive a magazine with discounts for cruise trips, new cars, etc,etc while we watch our health ins. rates go up every year and our SS check down every year. What is the 16$ membership for except for us to get these geat discounts when we are for the most part struggling just to pay our basic bills.

    • Mike, I appreciate your feedback. I hear you when you say you’re not a fan of AARP. I see evidence that AARP is trying to help support Social Security, but obviously they need to do more. I don’t know if you’re aware of the many services that they actually do perform that have nothing to do with discounts and headlines in the news. Here in NJ, they are very much involved in lobbying for senior citizen causes at our state capital. In addition, they regularly send petitions to us to send to our senators and even the president regarding potential legislation about Social Security, Medicare, etc. I have even been involved in telephone conference calls which are open to the public to discuss things like utility rates. Perhaps you should look into some of those things and you might just find something that you find worthy of being a member.

  6. I am also not going to renew my membership, I do not see AARP fighting to help seniors living on social security for some time . The cola increase is a scam. It will go to the increase in Medicare, oh well, give us folks who are a drain on society even though we paid our way for years and find our selves a drain on society as we no longer have anything left I wonder what folks are thinking they will one day get old and lose everything they worked for all their lives, then what I did not think life would be this way, I was told my 401K would last forever, when I reached 85 my money would have trippeled well guess what 2001 happened and everything well to hell in a short time, it did not happen and finally here we are in 2017 and it is gone, what 911 did and the bankers well time to stop complaining nobody listening anyway

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