Each year, Social Security benefits are eligible for a cost-of-living adjustment, or COLA, based on what U.S. inflation was in the third quarter of the prior year. The purpose of those COLAs is to help seniors on Social Security maintain their buying power as their living costs rise over time.
In January 2024, Social Security benefits got a 3.2% COLA. That took the average monthly benefit -- previously $1,848 -- up to $1,907.
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But your Social Security raise may end up being smaller than expected. Here's why.
1. You're on Medicare
People become eligible for Medicare when they turn 65, and you can sign up for Social Security as early as 62. So many seniors end up on both.
When you enroll in Medicare and are collecting Social Security, your monthly premiums for Medicare Part B are deducted from your benefits automatically. And the cost of Part B is rising this year.
In 2023, the standard monthly Medicare Part B premium was $164.90. This year, it's $174.70. That $9.80 increase will essentially come out of your COLA, leaving you with a smaller boost to your monthly income.
2. You're on Medicare and had a high income in 2022
The aforementioned $174.70 a month is the standard monthly premium for Medicare Part B. But higher earners on Medicare are subject to income-related monthly adjustment amounts, or IRMAAs, that increase what you pay for Part B -- multiplying your premium.
Now one thing you should know is that IRMAAs are based on your modified adjusted gross income (MAGI) from two years prior. So an increase in income for 2024 won't result in an IRMAA in 2024. Rather, this year, you'll be subject to an IRMAA based on your income from 2022.
If you're a single tax-filer, IRMAAs start to apply for a MAGI above $103,000. If you're married filing a joint tax return, IRMAAs begin to apply for a MAGI above $206,000.
IRMAAs are also tiered so that if you're single and your MAGI was $125,000 two years, you'll pay less of a surcharge than if your MAGI was $225,000. Still, IRMAAs could explain why your Social Security check isn't looking as robust.
When a smaller Social Security raise is a problem
Many seniors rely heavily on Social Security to make ends meet. So a smaller increase than expected could be a noticable blow to your finances.
Of course, if you're looking at an IRMAA as the reason why, then you have a fair amount of income coming from sources other than Social Security (or at least you did somewhat recently). But if a general increase in the cost of Medicare Part B is taking a toll your financial situation, then it may be time to look at cutting some expenses or taking advantage of the gig economy to give yourself some more financial wiggle room.
Furthermore, if you're now facing a Medicare Part B surcharge due to a one-time increase in your income that no longer applies, then it may be possible to appeal your IRMAA. Doing so could make your Medicare costs much more affordable.
