The Social Security Administration's 1.7 percent cost-of-living adjustment (COLA) for 2013 may be offset by Medicare Part B premium increases, signaling that health costs will likely consume an ever larger share of retirement savings, say Insured Retirement Institute officials.
The increase for the country's estimated 62 million Social Security recipients follows the release of Consumer Price Index data by the Department of Labor's Bureau of Labor Statistics.
However, the Social Security's cost of living increase notwithstanding, recipients may not receive bigger benefit checks. IRI officials say the increase could be mostly offset by higher Medicare Part B premiums, which typically are deducted from Social Security benefits.
Part B premium costs for 2013 will be announced in the near future, but industry estimates suggest an increase. The 2012 Medicare Trustees Report projected an increase of more than 9 percent.
While the majority of Medicare beneficiaries are protected by the hold-harmless provision, which prevents a beneficiary's Social Security check from declining, IRI officials say any offset of the COLA reduces the overall purchasing power of the Social Security benefit. 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.
"This reflects the growing trend of health-related expenses eating into retirement income," said IRI president and CEO Cathy Weatherford in a release. "The cost of health care 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."
According to IRI research, 42 percent of baby boomers expect Social Security to be a major source of retirement income. The same study also found that only 37 percent of baby 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 through 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.
The IRI is a not-for-profit organization that has assisted the insured retirement industry for the past 20 years.