Next year, the U.S. Social Security Administration is boosting benefits by more than it has in six years.
But don't get too excited.
Thanks to a little-known Medicare quirk, that benefit increase could be spent before retirees even have a chance to cash their checks.
On Friday, Oct. 13, the Social Security Administration (SSA) announced a cost-of-living adjustment (COLA) of 2% – over six times 2016's puny increase of 0.3%.
This means that, on average, Social Security recipients could expect a monthly beneficiary boost of roughly $27 per month, or about $329 more a year, according to AARP on Oct. 16.
These aren't "game-changer" numbers, of course; but they are nothing to snivel at, either.
Unfortunately, however, an obscure Medicare clause has come to light that has quashed the recent COLA optimism.
Thanks to this clause, 70% of retirees might not see that nice 2% boost after all.
See how Medicare is robbing retirees of their COLA – and how you can avoid the same fate…
Medicare's "Hold Harmless" Clause Will Affect 70% of Retirees Next Year
While the SSA and the U.S. Medicare programs are independent of one another, they're inextricably linked when it comes to their annual costs, policies, budgets, and expenditures. Their services benefit the same core group of Americans, after all: retirees.
Free Book: The secrets in this book helped one Money Morning reader make a $185,253 profit in just eight days. Learn how to claim your copy here…
Medicare's "hold harmless" clause is an example of this codependence.
A full 70% of Social Security beneficiaries have relied on the "hold harmless" stipulation, which prevents Medicare Part B premiums – the premiums that cover outpatient care (currently set at $134 a month) – from rising more than a beneficiary's Social Security COLA. For example, if Part B premiums rose by 7% one year, but Social Security's COLA was just 1%, seniors would expect – without the clause – to see their take-home amount drop because of those higher Part B premiums.
But the past six years have seen the "hold harmless" stipulation triggered over and over again…
That's because the COLA has stayed surprisingly low (in 2016, the COLA was set at 0%), while Medicare Part B premiums rose.
For instance, in 2012, former President Barack Obama's administration set the Part B premium standard at $99 per month – depending on a retiree's Social Security beneficiary status and his or her previous annual income. But the "hold harmless" clause knocked most retirees' Part B premium average down to $96.40 per month that year.
And this year, the standard Part B premium amount was set at $134. But because of the miniscule 0.3% COLA in 2017, 70% of beneficiaries were only required to pay an average cost of $109 for Medicare Part B per month.
Next year, however, these Social Security recipients will get that aforementioned 2% bump while Medicare premiums will stay flat, at $134 a month.
This means that Social Security recipients will soon have to pay more for their Medicare, because they'll finally have the means to do so – at least, as far as Uncle Sam's concerned.
These retirees will find $25 of that extra $27 swallowed up each month by the jump in the Medicare Part B premiums automatically deducted from their checks.
News like this can be a wake-up call for any retiree, but there are still myriad ways to make money next year – even if you're among the 70% of retirees who won't be enjoying the COLA after all.
Have a look at how you can juice your own returns by up to 20%…
Don't Worry About Social Security; Worry About Yourself
Money Morning Chief Investment Strategist Keith Fitz-Gerald is an expert on planning for retirement, and he knows better than to trust the government with something so important.
Indeed, he warns that the tax laws surrounding retirement may see many changes in the coming years as Uncle Sam frantically tries to avoid bankruptcy. "Our government is starving and hopelessly indebted," Keith told Total Wealth readers on May 31. "That's another way of saying it's desperate."
Keith's strategy isn't to rely on the government, but rather to navigate its policies in order to maximize profits. That's why he put together a simple chart to identify which kinds of investments should go into which kind of accounts.
For example, he advises putting master limited partnerships (MLPs) in regular taxable accounts instead of retirement accounts, lest you miss out on the various tax breaks that come with MLPs.
On the other hand, Keith suggests putting high dividend stocks in retirement accounts "because the cold, hard cash that's kicked off as part of the dividend process is otherwise taxed at the regular income tax rate if you don't."
You can check out the chart – and more savvy ways to stay ahead of the government's attempts to take your money – right here.
Stay One Step Ahead of the Social Security Administration
At the current rate, the Social Security Trust Fund will run dry in seven short years. If Congress doesn't get its act together, you'll find yourself missing 30% of your Social Security check.
You don't want to be caught flat-footed.
Fortunately, staying informed is easy with our new research service, Profit Alerts.
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