To say that Social Security and Medicare are important to the financial well being of seniors would be an understatement. Sixty-two percent of eligible beneficiaries rely on Social Security income for more than half of their income. And almost everyone who is eligible uses Medicare to help fund their healthcare after 65.
Here are the changes coming to Medicare and Social Security next year.
Any increases in benefits or payments are important. This week, both Social Security and Medicare had major announcements about benefits for 2021.
Every year Social Security announces a Cost of Living Adjustment (COLA) for Social Security benefits. Over the last 40 years, benefit increases have been as high as 14.3% and as low as zero.
In 2019 benefits increased by 2.8%, and in 2020 the benefits increase was 1.6%.
Due to low inflation, this year the Social Security Administration announced the boost for 2021 is a modest 1.3%. That will result in an average increase of about $20 a month for the 70 million seniors who collect benefits.
You can model your Social Security benefits increase as part of your overall retirement budget in the NewRetirement Retirement Planner.
Social Security benefit increases are based on an inflation calculation called the Consumer Price Index for Urban Wage Earners and Clerical Workers that measures the wages of clerical and wage workers in cities. This way of measuring inflation doesn’t take into account costs specific to seniors, and if Social Security does not keep pace with the actual rise in prices, then beneficiaries can afford less.
A 2018 report from the Senior Citizens League found that the purchasing price of Social Security benefits has declined by a whopping 34% over the last 18 years. In addition, “since 2000, COLAs increased benefits a total of just 46 percent, while typical senior expenses have jumped 96.3 percent.”
Mary Johnson, Social Security policy analyst for The Senior Citizens League, told CNBC that “The flat COLAs make it more difficult for retirees to be able to afford to pay for Medicare Part B premiums, which are going up about three times faster than the annual benefit increases.”
To rectify this oversight, the Senior Citizens League advocates a different inflation measure for seniors, the CPI-E (CPI for the elderly) that would account for rising costs specific to seniors like prescription drug costs, food and senior housing.
The full Social Security retirement age (the age at which you can collect 100% of your monthly benefit) will increase again in 2021 to 66 years and 10 months.
The full retirement age will increase again in 2021 by another two months and again in 2022 to 67 years.
Workers may still claim Social Security benefits as early as 62-years-old, but the amount of their benefit will be 29.17% less than their benefit if they wait till full retirement age to claim.
In 2021, well-to-do retirees can net quite a bit more each month. According to the Social Security Administration, the maximum monthly benefit at full retirement age will increase to $3,148 in 2021, up by $137 from 2020.
That’s an extra $1,644 a year for lifetime upper-income earners during retirement.
On the other hand, The maximum amount of wages taxed for Social Security will be $142,800 in 2021, up from $137,700 in 2020.
There is no doubt that whomever is elected president in 2020 will have a significant impact on Social Security and Medicare in 2020 and on the future of the programs.
For example, switching Social Security COLA benefits to the CPI-E calculation, the plan supported by the Senior Citizen’s League, is a part of presidential nominee Joe Biden’s platform. Biden has also outlined a slate of very specific initiatives to “preserve and strengthen Social Security” and to “protect and strengthen Medicare” among other policy proposals designed to benefit older Americans.
President Trump’s official web site does not mention Social Security or Medicare. The Republican party’s platform says that they will: “Protect Social Security and Medicare.”
The costs and benefits of Medicare are also adjusted every year. The increases for 2021 have not been announced as of this writing, but Congress passed a measure to limit how much Medicare Part B premiums can go up this year, and President Trump signed it into law on October 1, 2020. The cap for premium increases is 25%.
The Centers for Medicare and Medicaid increases for 2020 were:
- The standard monthly premium for Medicare Part B will be $144.30 in 2020, up from $135.50 in 2019.
- The annual deductible for Medicare Part B (covering some costs related to physicians, outpatient hospitals, home health, medical equipment, and other services not covered by Part A) will be $197 — a $7 increase.
- The Medicare Part A inpatient deductible will be higher — the exact amount depends on the number of quarters of work history you have.
- The maximum allowable deductible for standard Part D plans will increase to $435 in 2020. And the out-of-pocket threshold will increase significantly to $6,350.
Medigap plans C and F were not be available to new enrollees in 2020.
Starting in 2020, the Medicare Supplement plans that pay the Medicare Part B deductible were no longer available to newly eligible enrollees. This change is part of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).
It is important to keep your retirement plans up to date.
You may want to update your:
- Social Security benefit amount
- Optimistic and Pessimistic inflation rates
- Medical inflation rates
- Anything else in your plan that may have recently changed
The NewRetirement Planner makes it easy to create and maintain a detailed and reliable plan.