Friday, October 14, 2011

Social Security COLA Increase - Finally

Social Security COLA Increase Finally Coming, but Offset by Medicare Premiums

After two years without an inflation adjustment, the Social Security Administration is expected to announce a 2012 cost-of-living adjustment (COLA) of more than 3 percent on October 19th. The annual Social Security COLA is determined by a formula that averages inflation for the third quarter, as reflected by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). No COLA was awarded in 2010 or 2011 due to a spike in the third quarter of 2008, which resulted in a 5.8 percent COLA for 2009. By law, subsequent Social Security payments couldn’t rise until the CPI-W exceeded the 2008 level. Many seniors will see a substantial part of the COLA consumed by a higher premium for Medicare Part B (doctor visits and outpatient services), which usually is deducted from Social Security payments. For those who receive the average benefit of $1,177 per month, a 3.5 percent COLA would lift their gross 2012 payment to $1,218. Assuming that the official Part B premium is, as projected, $106.60, seniors could pay $10.20 more monthly for Part B, reducing their net benefit to $1,207 – an increase of 2.63 percent. However, if you are among the one-third of seniors who receive a monthly benefit between $500 and $1,000, that could translate to a COLA of 2.04 percent after Part B premiums. Part B’s impact on Social Security is a reminder that seniors are affected by different types of inflation than the general population, mainly due to medical costs. To learn more, go to http://reut.rs/pr4i0E.

Source: Alliance for Retired Americans Friday Alert

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