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What is your plan to deal with the impact of decreasing Social Security benefits? 

According to a recent report from the Senior Citizens League, a non-partisan advocacy group, over the past 8 years, Social Security Cost of Living Adjustments (COLA) averaged just a little over 1 percent per year. In three of those years – 2010, 2011, and 2016 – no cost of living adjustments were paid on Social Security benefits. In 2017, the cost of living increase was 0.3 percent.

On the other side of things, we have Medicare premiums going up. In 4 of the last 8 years, the Medicare premium has been higher than the Social Security benefit increases. Therefore, these premium increases are basically wiping out any Social Security benefit increases we’ve seen in the past several years.

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‘Hold Harmless’ Provision

Now, most people do have their Medicare premium deducted from their Social Security check, an important thing to note, because of the ‘hold harmless’ provision. This provision states that your Medicare Part B premium itself cannot go up more than your Social Security benefit goes up, if you have your Medicare premium deducted from your Social Security check.

Yet, 30 percent of Medicare beneficiaries are not protected by the ‘hold harmless’ clause. Typically, that’s for one of two reasons: 1) they either make too much money or 2) are not drawing Social Security benefits yet. If you are single and make more than $85,000 a year, or part of a married couple making more than $170,000, you are not protected by this provision. And guess what – tax-free municipal bonds do count in that number! We’ve also talked a lot about how some people choose to delay taking their Social Security benefits because of the increase in benefits – 8 percent per year to age 70. However, if you begin on Medicare before you begin taking Social Security benefits, then you’re not held harmless from Medicare premium increases.

What do you mean, decreasing benefits? 

Even if you are protected by the ‘hold harmless’ provision, you’re potentially paying more in income tax. While your net check may stay the same if you see increases in both Social Security benefits and Medicare premiums, you could pay more in income tax with that higher Social Security benefit. That creates problems.

In 2018, Social Security benefits increased by 2 percent, boosting the average benefit by approximately $27 per month. However, Medicare premiums increased by about $25 per month, virtually wiping out any increase.

The Senior Citizens League stated in their report that the cost of living adjustment for Social Security benefits would need to double their current average rate of growth and Medicare Part B increases would need to slow by half the historic rate of growth since 2000 to ensure the adequacy of Social Security benefits for the majority of beneficiaries. Let me break that down. In my opinion, Social Security benefits are not going to double in in increases for cost of living and Medicare costs are not going to go down 50 percent since 2000. What that means is, in terms of real dollars, your Social Security benefits are decreasing every single year.

How do you fight inflation?

Inflation is the silent killer of retirement income. It’s kind of like cholesterol – it gradually sneaks up on you. You don’t want to wake up 10 to 15 years from now and ask, “Where is my income?”

Did you know that if you’re married and 65 years old, the average joint life expectancy before the second spouse dies is 29 years? That means that either you or your partner will live to be an average 94 years old. And that’s just average. What if one of you lives into that spot between 96 and 104? You may be laughing just thinking about that, but you know, we have over 400,000 centenarians in the world today. That number compared to 10 years ago shows exponential growth that is likely to continue growing into the next decade.

So, you live to 95, 97, 98 years old. The way it looks today, the cost of living increases you’ll see over time to your Social Security benefits will be very slight. Compared to inflation, you’ll actually lose money. How can you structure your assets to fight that battle?

That’s an important question you need to answer in your financial plan. One of the fundamental issues we cover at Brogan Financial is how to fight the inflationary battle long-term while still preserving short-term income not subject to the ups and downs of the stock market. That is especially important right now, when we are experiencing market volatility. You need to have a plan to deal with the inflationary effect identified in your financial plan.