So­cial Se­cu­rity checks will be larger in 2019

Re­cip­i­ents will get a 2.8% boost in ben­e­fits as in­fla­tion creeps up.

Los Angeles Times - - BUSINESS BEAT - Associated press

Tens of mil­lions of So­cial Se­cu­rity re­cip­i­ents and other re­tirees will get a 2.8% boost in ben­e­fits next year as in­fla­tion edges higher. It’s the big­gest in­crease most re­tired baby boomers have re­ceived.

Af­ter a stretch of low in­fla­tion, the cost-of-liv­ing ad­just­ment, or COLA, for 2019 is the high­est in seven years. It amounts to $39 a month for the aver­age re­tired worker, ac­cord­ing to es­ti­mates re­leased Thurs­day by the So­cial Se­cu­rity Ad­min­is­tra­tion.

The ad­just­ment af­fects house­hold bud­gets for about 1 in 5 Amer­i­cans, in­clud­ing So­cial Se­cu­rity ben­e­fi­cia­ries, dis­abled vet­er­ans and fed­eral re­tirees. That’s about 70 mil­lion peo­ple, enough to send rip­ples through the econ­omy.

Un­like most pri­vate pen­sions, So­cial Se­cu­rity has fea­tured in­fla­tion pro­tec­tion since 1975. Ben­e­fi­cia­ries also gain from com­pound­ing since cost-of-liv­ing ad­just­ments be­come part of their un­der­ly­ing ben­e­fit, the base for fu­ture cost-of-liv­ing in­creases.

None­the­less, many re­tirees and their ad­vo­cates say the an­nual ad­just­ment is too mea­ger and doesn’t re­flect higher health­care costs for older peo­ple. Fed­eral bud­get hawks take the op­po­site view, ar­gu­ing that in­creases should be smaller to re­flect con­sumers’ penny-pinch­ing re­sponses when costs rise.

With the ad­just­ment, the es­ti­mated aver­age monthly So­cial Se­cu­rity pay­ment for a re­tired worker will be $1,461 a month next year.

“For more re­cent re­tirees, the 2019 COLA will be the largest in­crease they have got­ten to date,” said pol­icy an­a­lyst Mary John­son of the non­par­ti­san Se­nior Cit­i­zens League.

Danette Deakin, a re­tiree from Bo­li­var, Mo., said she feels as though her cost-ofliv­ing ad­just­ment is al­ready ear­marked for ris­ing ex­penses.

Her Medi­gap in­surance for costs not cov­ered by Medi­care is go­ing up, and so is her pre­scrip­tion drug plan. She ex­pects her Medi­care Part B pre­mium for out­pa­tient care will rise too.

“It isn’t enough of an in­crease that it takes care of all of the in­creases from health­care, plus rent — our rent gets in­creased ev­ery year,” said Deakin, 70, who worked in the fi­nance depart­ment at a boat deal­er­ship.

Health­care costs eat up about one-third of her in­come, she es­ti­mated.

“I ap­pre­ci­ate the COLA ad­just­ment, and in no way am I com­plain­ing,” Deakin added. “It’s just that ev­ery sin­gle thing you can talk about goes up. It doesn’t go down.”

By law, the ad­just­ment is based on a broad in­dex of con­sumer prices. Ad­vo­cates for se­niors claim the gen­eral in­dex doesn’t ac­cu­rately cap­ture the ris­ing prices they face, es­pe­cially for health­care and hous­ing. They want the gov­ern­ment to switch to an in­dex that re­flects the spend­ing pat­terns of older peo­ple.

“What the COLA should be based on is still a very real is­sue,” said Wil­liam Arnone, chief ex­ec­u­tive of the Na­tional Acad­emy of So­cial In­surance, a re­search or­ga­ni­za­tion not in­volved in lob­by­ing. “Older peo­ple spend their money in cat­e­gories that are go­ing up at a higher rate than over­all in­fla­tion.”

The ad­just­ment is now based on the con­sumer price in­dex for ur­ban wage earn­ers and cler­i­cal workers, or CPI-W, which mea­sures price changes for food, hous­ing, cloth­ing, trans­porta­tion, en­ergy, med­i­cal care, re­cre­ation and ed­u­ca­tion.

Ad­vo­cates for the el­derly would pre­fer the CPI-E, an ex­per­i­men­tal mea­sure from the gov­ern­ment that ref lects costs for house­holds headed by a per­son 62 or older. It usu­ally out­paces gen­eral in­fla­tion, though not al­ways.

Cost-of-liv­ing ad­just­ments can be small or zero, as was the case in sev­eral re­cent years. Peo­ple of­ten blame the pres­i­dent when that hap­pens. How­ever, the White House can’t dic­tate the ad­just­ment, which is cal­cu­lated by non­po­lit­i­cal ex­perts.

Pres­i­dent Trump has re­peat­edly vowed not to cut So­cial Se­cu­rity or Medi­care. But the gov­ern­ment is run­ning $1-tril­lion deficits, partly as a re­sult of the Repub­li­can tax-cut bill Trump signed.

Ad­vo­cates for the el­derly fear that mount­ing deficits will re­vive pres­sure to cut So­cial Se­cu­rity.

“The rev­enue loss in the tax bill con­trib­utes to much higher deficits and debt, and that is where the threats be­gin to come in,” said David Cert­ner, pol­icy di­rec­tor for AARP. “So­cial Se­cu­rity, and in par­tic­u­lar the COLAs, have been the tar­get.”

For­mer Pres­i­dent Obama floated — but ul­ti­mately dropped — a pro­posal called chained CPI, which would have slowed an­nual cost-of-liv­ing ad­just­ments to re­flect penny-pinch­ing by con­sumers.

Be­hind it is the idea that when the price of a par­tic­u­lar good or ser­vice rises, peo­ple of­ten re­spond by buy­ing less or switch­ing to a low­er­cost al­ter­na­tive.

Be­cause of com­pound­ing, smaller ad­just­ments would have a dra­matic ef­fect over time on the fed­eral bud­get and So­cial Se­cu­rity fi­nances. But if in­fla­tion con­tin­ues to rise, pro­pos­als to scale back cost-of-liv­ing ad­just­ments carry greater po­lit­i­cal risk.

Be­yond fed­eral bud­get woes, So­cial Se­cu­rity faces its own long-term fi­nan­cial prob­lems. It’s ex­pected to stop be­ing able to pay full ben­e­fits start­ing in 2034.

So­cial Se­cu­rity is fi­nanced by a 12.4% tax on wages, with half paid by workers and the other half paid by em­ploy­ers. Next year, the max­i­mum amount of earn­ings sub­ject to the So­cial Se­cu­rity tax will in­crease to $132,900 from $128,400.

About 177 mil­lion workers pay So­cial Se­cu­rity taxes. Of those, nearly 12 mil­lion workers will pay more in taxes be­cause of the in­crease in tax­able wages, ac­cord­ing to the So­cial Se­cu­rity Ad­min­is­tra­tion.

Wil­liam Thomas Cain Getty Images

THE AD­JUST­MENT is the high­est in seven years, amount­ing to $39 a month for the aver­age re­tired worker.

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