Do you know how the COLA will impact your retirement plans? First and foremost, do you know what a COLA is? The Social Security Administration uses COLA as shorthand for “Cost of Living Adjustment.” A COLA is the mechanism that the Social Security Administration uses to decide if it should raise the amounts paid to the 69 million Americans who receive a social security check. It is a concept that is a vital part of your Social Security benefits.
The reason the COLA exists is so that benefits keep pace with the cost of living in America. A COLA does not happen every year, but there was one in 2019 and again, this year, with a COLA increase of 1.6%. This means that the average recipient of retirement benefits who is receiving $1,427 per month from Social Security will receive an additional $23 monthly.
The 2020 COLA can positively impact your retirement this year. At its core, the COLA is the feature of Social Security that increases the monthly payments to take inflation into account, and this results in larger checks from Social Security. The increase in the Social Security monthly payment could be used to pay the increase in the standard monthly Medicare Part B premium in 2020 which will be $144.60. This is an increase of $9.10 compared to 2019, when premiums were $135.50. In addition, higher Medicare Part B premiums are charged to those with incomes above $87,000, for single filers or $174,000, for joint filers in 2020.
If a beneficiary does not see enough of an increase in his or her Social Security benefit to cover the increase in the Medicare premium, a rule called the “hold harmless provision” kicks in. This policy prevents an individual’s Social Security benefit from going down from one year to the next as a result of Medicare premium increases. Many people have been held harmless in the past because the COLA increases were not large enough to cover the full amount of the increased Part B premium. For these individuals, the Part B premium increased the same amount as the increase in their Social Security benefit.
We know that this article may raise more questions than it answers for you. Understanding your retirement plans and creating a legacy around them is just one part of our consideration when we work with you to create an estate plan. We encourage you to contact our office to schedule a meeting on this and any estate planning question you have now, or throughout the year.