Almost one-third of Social Security recipients could see a decline in their payments next year because of increases in Medicare costs, according to retirement industry officials.
A majority of Social Security recipients will be protected from a decline, but those making more than certain income limits could experience a decrease. For singles earning more than $87,000 a year and couples filing jointly and earning more than $174,000, which accounts for about 30% of recipients, increased Medicare payments will be deducted from their Social Security benefits.
Catherine Collinson, CEO and president of the nonprofit Transamerica Institute and of the Transamerica Center for Retirement Studies, said, “In a possible zero-interest-rate environment, we do not know what the COLA (cost of living adjustment for Social Security benefits) will look like next year. COLAs may be low or there may be none. Medicare has been under a financial strain for years already and health-care costs are going up.” COLA increases have averaged between 1% and 2% in the past, although some years there have been none.
For about 70% of Social Security beneficiaries, there is a hold harmless law that prevents Social Security benefits from being reduced as a result of an increase in Medicare costs. The provision blocks Medicare premiums from increasing more than the cost of living increase for Social Security for those people, said William Meyer, CEO of Retiree Inc. and Social Security Solutions and a nationally recognized specialist in retirement income withdrawal strategies.
The Medicare Part B amount is projected to increase 5.5% in 2021 to $153.30 a month, from $144.60 this year and $135.50 last year, Meyer said. That projection was made by the Medicare Board of Trustees prior to the advent of the pandemic, so it could change, he said.
In addition, for those people who have lost their jobs during the pandemic, the situation could be even worse because not having a job for an extended period of time could lower their Social Security benefits when they retire, he said.
“It is clear Social Security and Medicare reform will be important in the future,” Meyer said. “Retirees need to find an advisor who keeps up with the rules and changes to advise them on how Medicare costs will impact their retirement income plan and how to make adjustments to the way they draw down their savings to reduce their taxes and Medicare costs."
Collinson added, “It is important for retirees to have a complete understanding of their benefits and costs. Financial advisors can play a really important role in planning for these changes and in running the numbers.
“This is such an individual question. If there are changes to a retiree’s net income, some people may be able to absorb it, but for others it could have serious implications,” she added. “A financial advisor can set off an alarm if a client is going to be severely impacted or the advisor can offer peace of mind if the client is going to be OK.
“With the pandemic, the economic downturn, volatility and the zero interest rate environment, the role and value of the financial advisor is greater than it has ever been,” Collinson said.