The Social Security Administration announced Tuesday that monthly Social Security and Supplemental Security Income (SSI) benefits for nearly 62 million Americans will increase 1.7% in 2013.
But some retirement groups are worried that a looming Medicare Part B premium increase that could consume most of that extra money reflects a worrisome trend of health-related costs consuming a larger share of retirement resources.
The 1.7% cost of living adjustment (COLA) will begin with benefits that more than 56 million Social Security beneficiaries receive in January. Increased payments to more than 8 million SSI beneficiaries will begin on Dec. 31, according to the Social Security Administration.
Despite the increase, most Social Security recipients may not receive bigger benefit checks as the increase could be mostly offset by higher Medicare Part B premiums, which typically are deducted from Social Security benefits, according to the Insured Retirement Institute (IRI).
IRI said in a statement released the same day that Part B premium costs for 2013 will be announced in the near future, but estimates show an increase is on the horizon, with the 2012 Medicare Trustees Report projecting an increase of more than 9%.
“While the majority of Medicare beneficiaries are protected by the hold-harmless provision, which prevents a beneficiary’s Social Security check from declining, any offset of the COLA reduces the overall purchasing power of the Social Security benefit, as the increase is designed to keep pace with inflation,” IRI says. “Furthermore, the provision does not apply to higher-income individuals and new enrollees, who can expect premiums to consume a larger share of their Social Security checks.”
IRI President and CEO Cathy Weatherford said in the same statement that “this reflects the growing trend of health-related expenses eating into retirement income,” The cost of health care, she said, “is a real risk that can jeopardize one’s retirement security. Now more than ever, consumers need to be aware of how quickly health-related expenditures can decimate retirement savings and develop a plan with a financial advisor that includes a strategy to cover basic living expenses as well as medical expenditures.”
According to IRI research, 42% of baby boomers expect Social Security to be a major source of retirement income. The same study also found that only 37% of boomers are confident that they will have enough money to take care of their medical expenses during retirement. A separate IRI study found that cumulative health care expenses including premiums for a healthy 65-year-old male, throughout the remainder of his life, will reach $369,000 on average. For a healthy 65-year-old female, cumulative costs will reach $417,000 on average.