Earlier this year, seniors on Social Security got some pretty good news. Next year, Social Security benefits will be eligible for a 5.9% cost-of-living adjustment (COLA), leaving seniors with their largest raise in decades. In fact, the Social Security Administration estimates that once that boost is implemented, the average monthly benefit will increase from $1,565 to $1,657, representing a $92 monthly raise.
But that doesn't mean the average senior is about to get $92 richer per month. Thanks to an upcoming increase in the cost of Medicare, Social Security's 2022 raise may fall short of expectations.
Part B costs are rising
Though Medicare Part A, which covers hospital care, is free for most enrollees, Part B, which covers diagnostic and outpatient care, charges a monthly premium that can change from year to year. This year, the standard Part B premium is $148.50, though higher earners pay more. Next year, the standard Part B premium is jumping all the way up to $170.10. And for seniors who pay their Part B premiums through Social Security, that extra money will come right out of their benefits, leaving them with less income to enjoy.
To be clear, seniors who are enrolled in Medicare but aren't on Social Security will also face higher Part B costs. Instead of having those more expensive premiums deducted from their benefits, they'll simply write out larger checks. But either way, Medicare's Part B premium hike will no doubt serve as a blow to seniors who were hoping to get ahead financially in 2022 in the wake of a large Social Security boost.
Now the good news is that because Social Security benefits are increasing so much, next year's Medicare increases won't wipe out seniors' COLA completely. In previous years, when COLAs were stingier, that was a distinct possibility.
But still, beneficiaries are now looking at losing roughly one-third of their raise to Medicare Part B premium hikes alone. And given that the cost of everyday goods, from gas to groceries, has increased so much in recent months due to inflation, it's actually doubtful that seniors will gain any buying power at all following next year's COLA.
All of this highlights the importance of saving for retirement outside of Social Security. All it takes is a substantial Medicare premium hike to erode an increase in benefits. But those with money in an IRA or 401(k) plan are often in a much stronger position to grapple with rising costs, all the while stressing less when living expenses increase.
Furthermore, workers who are eligible to participate in a health savings account (HSA) should take advantage of that option. HSA funds can be carried into retirement and used to cover Medicare premiums, among other health-related expenses.
Seniors can't catch a break
In addition to seniors paying more for Medicare Part B on a monthly basis, the annual Part B deductible is rising from $203 in 2021 to $233 in 2022. That's yet another expense that will, unfortunately, eat away at next year's Social Security COLA and strain seniors' limited budgets.
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