You may not be laughing when you hear how small the Social Security Cost of Living Adjustment is for … [+]
When Social Security is a major part of your retirement income, every single penny counts. The good news is that all recipients of Social Security retirement income will be getting a small raise in 2020. The cost of living adjustment for Social Security will be 1.6% in 2020 for the nearly 69 million people receiving Social Security benefits. This is 43% percent less than the cost-of-living increase of 2.8% that was received this year, 2019.
The cost of living adjustment recently announced by the Social Security Administration is smaller than many had predicted it would be. In September, I’d written about the Six Changes for Social Security coming in 2020, where I’d estimated a cost of living adjustment that would be closer to 1.8% in 2020.
The average retiree will receive a bump of $24 to their average monthly Social Security benefits. Obviously, some will get more, and others will get less.
In 2019 the average Social Security benefit was just $1422 per month. This is not enough to pay for the average one-bedroom in Los Angeles, let alone have a nice standard of living. The maximum Social Security benefit in 2019 was just $2861 per month at full retirement age.
The rising cost of medical care will hit seniors hard, especially those on a fixed income.
How is the Cost of Living Adjustment Determined?
Each year the Social Security Administration (SSA) bases in cost of living (COLA) increase on the Department of Labor’s consumer price index (CPI) for urban wage earners and clerical workers. The CPI is meant to be used as a measure of inflation. While the 1.6% COLA increase to Social Security benefits is tiny, every penny counts for those just scraping by in retirement.
Retirees will continue to feel pressure on their wallets, even with this cost of living increase. Social Security benefits typically do not keep up with the common expenses people face as they age. We are talking about expenses like housing, food, transportation, and of course, health care and the astronomical amount of money people pay for prescription drugs.
Related: The Ways To Live Happier And Wealthier Life
Across the board, Americans have been hit with higher out of pocket costs for health care. However, these increases disproportionately affect seniors, especially those on fixed incomes. According to the Labor Department, the cost of medical services has increased by 4.4% in September compared to the previous year.
There is little reason to believe that Medicare costs will not increase again next year. This past spring, the trustees for Medicare projected the standard monthly premium in 2020 for Medicare Part B, which would increase by $8.80 per month from $135.50 to $144.30 per person. This alone would eat more than a third of the 2020 Social Security cost of living increase. Medicare Part B is where you get coverage for doctor visits and other types of outpatient care.
senior athletes synchronous exercising on step platforms at gym. Staying active can help reduce … [+]
More Social Security Taxes Coming in 2020
For those of you still earning an income, the Social Security Administration also announced that the amount of income subject to SSA taxes will be increased to $137,700. This is a 3.6% increase from the $132,900 of income that was subject to SSA taxes in 2019.
If you are not yet receiving Social Security benefits, do what you can to delay starting benefits. You can take Social Security as early as age 62 and as late as age 70. The larger your Social Security Benefit, the larger your COLA adjustment will be each year, in absolute dollar terms. Whether you are young or older don’t ignore your finances and retirement plans.