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No bump likely in Social Security checks next year


Retirees, beware: Your Social Security retirement check might not grow at all next year.

The Board of Trustees of the Social Security Trust Funds estimates that the 2017 cost-of-living-adjustment likely will be very small to flat: from 0.7 percent down to zero. The adjustments are based on increases in the consumer price index.

"It's scary for seniors on fixed income," said Paul Auslander, director of financial planning at ProVise Management Group. "People are resigned to it being what it is: They're not getting an increase and they're cutting expenses in other places." The average monthly retirement benefit as of May was about $1,300.

In 2014, the most recent data available, 61 percent of beneficiaries aged 65 and over said Social Security accounted for at least half of their income. And for 33 percent, Social Security was more than 90 percent of their income.

Look for alternative cash flow

Aside from managing expenses, retirees have several options to maintain their buying power in retirement, including turning to their homes as a source of income.

One strategy that's gaining some traction is the use of a home equity conversion mortgage, Auslander said. This is a reverse mortgage that permits older homeowners to tap some of their home equity. As long as borrowers meet the terms of the mortgage and continue to use the home as their principal residence, they will not have to repay the loan.

Repayment is due once the home is sold or the borrowers are no longer using it as a primary residence. Any equity remaining beyond the amount borrowed can be passed onto heirs, but no debt will be transferred to them.

However, in order to qualify, you must have already paid off any existing mortgage or be close to it. This can be a problem for some. That's because nearly 34 percent of senior households owed money on a mortgage, home equity line of credit, or both, in 2013, according to the Survey of Consumer Finances, which is conducted by the Federal Reserve.

Managing Medicare expenses

Some retirees will confront the double whammy of flat Social Security payments and higher costs for Medicare Part B. This Medicare coverage applies to doctor's services, outpatient care and ambulance services. Retirees generally pay for it through deductions in their Social Security.

A special provision generally protects most retirees from higher Medicare Part B costs eroding their Social Security benefits in a year when the premium increase is higher than the cost-of-living adjustment. Those individuals will not pay higher Part B expenses.

This "hold harmless" provision doesn't apply to everyone, however. Here are three situations in which you may face higher Part B premiums:

  • You are eligible to enroll in Medicare for the first time in 2017.

  • You are enrolled in Medicare, but you aren't collecting Social Security.

  • You are already subject to Medicare premium surcharges. This will apply if you fail to enroll on time and are assessed a penalty.

Now is a good time to think about how to keep those costs down.

Generally, you're eligible to sign up for Medicare during the initial enrollment period, which begins three months before you turn 65 and ends three months after.

Failure to sign up when you're first eligible will result in a 10 percent late enrollment fee for each full 12-month period you went without coverage. This penalty applies to your monthly premiums for the rest of your life.

How much you pay for Medicare Part B is based on your income bracket and the return you filed with the IRS two years before enrollment. Individuals with the most income could be paying as much as $389.80 a month for coverage. Any late-enrollment penalties, however, will be calculated from the $121.80 base monthly Medicare premium.

Medicare Part D, which covers prescription drugs, also penalizes those who sign up late. That penalty will vary based on how long you went without prescription drug coverage.

People also tend to miss the enrollment window because they are still working past 65 and they are confused about their health-care options, said Katy Votava, president of Goodcare.com, a Medicare consultancy.

"Not understanding the Medicare enrollment period and missing the window for changing plans" are two of the biggest mistakes retirees make that result in higher premiums, Votava said.