Retirees are often talked about as though they live on a fixed income. For the most part, that's true, but there's one key part of many retirees' incomes that has the potential to increase every year. That part? Social Security. Thanks to an annual cost of living adjustment, Social Security recipients see their benefit checks adjusted upwards for inflation over time.
Beginning with their December 2023 benefits (payable in January 2024), Social Security recipients will see a 3.2% increase in what Social Security hands them each month. The typical retiree currently gets $1,844.76 from the program, so that 3.2% increase will add $59.03 , to take the total to $1,903.79.
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What Social Security hands out, Medicare partially takes away
While that initial increase seems nice, unfortunately, it only tells part of the story. The other part is Medicare, particularly Medicare Part B. If you are enrolled in both Medicare and Social Security, your Medicare Part B premiums are typically deducted directly from your Social Security payment. For 2024, the standard Medicare Part B premium is increasing by $9.80 per month, to $174.70 from $164.90.
As a result, that typical Social security recipient will really only see an increase of $49.23 per month, removing almost 17% of the boost that person might otherwise expect to get. This sort of interplay happens every year, but it can come as a surprise to a person who is new to receiving Social Security benefits.
In fact, in the right circumstances, the increase in Medicare Part B premiums can eat through the entirety of a person's Social Security cost of living adjustment. Thanks to a "Hold Harmless" provision in the law, that person's Social Security check won't drop because of an increase in Medicare Part B premiums. Still, it's important to recognize that if Medicare premiums keep rising faster than overall inflation, your Social Security benefit may not really keep up in real terms.
What can you do about it?
Perhaps the most important thing you can do is keep an eye on your costs. If you can make ends meet now, then you should still be able to in January, when the combination of Social Security and Medicare Part B will keep at least the same number of dollars headed your way.
If you're not able to make ends meet now, then the modest net $49-a-month or so increase that Social Security may be handing you likely won't be enough to make a big difference in your cost structure. Instead, look for ways to cut back to help your available money go further.
One great approach to cutting back costs starts by writing down where your money is going -- every penny of it -- whenever you spend anything. At least once a month, go back and look at what you've spent and ask yourself if that was money you needed to spend, wanted to spend, or simply spent mindlessly.
With any luck, by keeping an eye on where your money is going, you'll find things that you no longer need or want to spend on. Perhaps you have old subscriptions you never use. Maybe you've got a habit of buying knick-knacks and didn't realize how much you were spending on them. Getting rid of those unneeded or absent-minded purchases might free up a decent amount of cash.
If you've already gotten rid of those easy costs, then take a look at things you are spending money on but can cut back on. Can you adjust your thermostat up a few degrees in the summer and down a few in the winter to save on heating and cooling costs? Can you consolidate trips to save on gas? What about switching to generics from name brands to save a bit on food and personal care items?
By figuring out which items you're spending on that you can cut back the costs of with the least amount of pain, you can often find significantly more breathing room in your monthly cash flows.
Get started now
Starting in January, your Social Security will reflect the changes from both Social Security's cost of living increase and Medicare's Part B premium adjustments. By putting a plan in place today, you can give yourself a running start to handle the combined impact of both shifts.
