2024 Social Security & Medicare Update
Late October is always a fun time of year. As we enter Fall, the leaves turn a beautiful array of color, all the kids get to dress up for Trick or Treating, the opportunity for cool nights and bonfires, and for us financial planners the release of next year’s Social Security and Medicare updates!
The Social Security Cost of Living Adjustment (COLA) was a top headline to end 2022 going into 2023. The 8.7% COLA was the largest since E.T. the Extra-Terrestrial was released in 1982. With the Federal Reserve having another year to increase interest rates to combat inflation, we are seeing the United States inflation rate fall from its high in the summer of 2022 of over 9% to roughly 3.7% as of the start of October 2023. The Fed target remains at 2% and we’ll likely continue to see a Fed focused on inflation for the foreseeable future.
What does the Federal Reserve and inflation have to do with Social Security and Medicare? Well, the annual Cost of Living Adjustment (COLA) is computed based upon the prior year’s inflation. With inflation coming down in 2023, the 2024 COLA for Social Security will be 3.2%.
For example, if you had a $1,500 monthly Social Security benefit in 2023, in 2024 your benefit will rise to $1,548 per month. While the increase won’t make you rich, we know the cost of EVERYTHING is higher these days and the COLA is there to help everyday citizens keep up with that rising cost. Note that this is the benefit increase before any deductions like Medicare Part-B & Part-D premiums and taxes.
While the Social Security COLA is tied to US inflation, the Medicare Part-B COLA is computed based upon the expected cost of healthcare in the coming year and the changes in the cost of healthcare over the prior year. For example, even though the Social Security COLA was 8.7% in 2022, the Part-B COLA was actually -3%. The Part-B premium went down in 2022 as a result of a repricing of an Alzheimer’s drug.
This year, the Medicare Part-B premium increase is 5.94%. The base Medicare Part-B premium will increase from $164.90 to $174.70, an increase of $9.80 per month.
Lastly, if you remember from our April 2023 blog, we discussed IRMAA (Income Related Monthly Adjustment Amount) and how that can affect your monthly Medicare premiums. As a result of prior year inflation, those IRMAA brackets will be increasing as well.
If you look back to your 2022 income tax return and your MAGI (Adjusted Gross Income + Tax-Exempt Interest) is less than $206,000 as a Married couple, you will pay the base amount of Medicare Part-B premiums at $174.70. If your MAGI was over $206,000 by even $1 then you’ll be paying a higher monthly premium.
In summary, Social Security and Medicare are the lifeline of United States retirees and for most are an irreplaceable and necessary part of their ongoing wellbeing. In our practice, we take into consideration the annual COLA as part of a larger planning process to help you thrive in retirement while avoiding gotchas like IRMAA. Please reach out to our office at 219-465-6924 if you would like to discuss your financial needs or if you would like more information.
Mark Rosinski, CFP®, CPA
Wealth Advisor