Earlier this year, Social Security seniors got some pretty good news. Next year, Social Security benefits will be eligible for a 5.9% cost of living (COLA) adjustment, giving seniors their biggest increase in decades. In fact, the Social Security Administration estimates that once that boost is implemented, the average monthly benefit will increase from $1,565 to $1,657, equating to a $92 monthly increase.
But that doesn’t mean the average senior is about to get $92 richer a month. Thanks to an imminent rise in Medicare costs, the Social Security increase in 2022 may fall short of expectations.
Part B costs rise
While Medicare Part A, which covers hospital care, is free for most enrollees, Part B, which covers diagnostic and outpatient care, charges a monthly premium that can change from year to year. This year, the standard Part B premium is $148.50, although higher earners pay more. Next year, the standard Part B premium will jump all the way up to $170.10. And for seniors who pay their Part B contributions through Social Security, that extra money comes directly from their benefits, leaving them with less income to enjoy.
To be clear, seniors who are enrolled in Medicare but not in Social Security will also face higher Part B costs. Instead of having those more expensive premiums deducted from their benefits, they just write bigger checks. But either way, the Part B premium increase of Medicare will no doubt be a blow to seniors who hoped to get ahead financially in 2022 after a big Social Security hike.
The good news is, because Social Security benefits are soaring, next year’s Medicare increases won’t completely wipe out seniors’ COLA. In previous years, when COLAs were stingy, that was an obvious possibility.
Even so, beneficiaries now look forward to losing about a third of their raise to Medicare Part B premium increases alone. And since the cost of everyday goods, from gas to groceries, has risen so sharply in recent months due to inflation, it’s actually questionable whether seniors will gain purchasing power after next year’s COLA.
All this emphasizes the importance of saving for retirement outside of social security. All it takes is a substantial increase in the Medicare premium to offset an increase in benefits. But those with money in an IRA or 401(k) plan are often in a much stronger position to grapple with rising costs while under less stress when the cost of living rises.
In addition, employees who are eligible to participate in a health savings account (HSA) must take advantage of that option. HSA funds can be retired and used to cover Medicare premiums, among other health-related costs.
Seniors can’t take a break
In addition to seniors paying more monthly for Medicare Part B, Part B’s annual deductible will rise from $203 in 2021 to $233 in 2022. That’s yet another expense that will sadly languish on Social Security COLA and next year’s strain. the limited budget of seniors.