Announcer:
It’s time now on KROS for Financial Focus, brought to you by Nelson Corp Wealth Management. The opinions voiced in this show are for general information only, and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representatives, securities offered through Cambridge Investment Research Incorporated, a broker-dealer, member of FINRA/SIPC. Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and Nelson Corp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus Program.
Nate Kreinbrink:
Good morning. And welcome to this week’s Financial Focus, brought to you each and every Wednesday morning right here on KROS. Well, this is Nate, James joining me again today. A little foggy out there, little cooler temperatures and made it through the hurricane-like winds last night, huh?
James Nelson:
Yeah, exactly. Weird to have that come up like that, but yeah, I think by mid-day, everything should be out of here.
Nate Kreinbrink:
James and I were talking on the way up here, just the winds that we got, let alone timesing those by five, for whatever, as far as what an actual hurricane actually looks like and enduring. You can see where some of the devastation and the wind and the damage that it does cause when it comes down into some of those areas.
James Nelson:
No doubt. I had a couple of trees down in my neighborhood when I left this morning. And I didn’t think it was that breezy, to knock some trees down, but evidently it was.
Nate Kreinbrink:
It was a, it definitely came and it was nice though to open up the windows and get some fresh air blowing through the house. And it looks like we’re going to keep it here for a few days. Until possibly maybe the following weekend, as far as when maybe heat starts ramping back up again, and have some summer like temperatures again.
James Nelson:
Yeah. Yeah. I’m all for this cooler weather.
Nate Kreinbrink:
Makes it more comfortable.
James Nelson:
Yeah, that’s right where I like it.
Nate Kreinbrink:
So today’s program, I know we’ve talked, whether it’s been myself, James, Brad, Dave, when he’s been on, talked a lot, obviously, about the markets lately. Some of the volatility that it has caused, where we’ve been, where we kind of see things progressing, some of the different factors that have been impacted by what we’ve just kind of experienced over the last two months. One area that we kind of overlooked a little bit and that I think needs to be kind of considered, and in the back of people’s mind as far as what this impact is going to have is Social Security and Medicare benefits.
James Nelson:
Yep. Yeah, no doubt. Social Security and Medicare is a big thing. And we’re kind of getting to the point where we can start looking forward to see what the cost of living adjustment may be. If we have one for next year. That’s announced on October 13th and it’s the CPI, the consumer price index, is looking at a lot of things. And it’s basically gauging where inflation is at and where the overall economy’s at to see what’s warranted as far as a cost of living adjustment for those on Social Security. And what we’ve seen, given the current environment, we’ve seen unemployment go up dramatically. We’ve seen the underlying economic data really deteriorate. And it’s kind of pointing to a warning sign as far as Social Security goes and the consumer price index.
James Nelson:
There’s a reasonable chance that we will not get a cost of living adjustment with where things are at. And even if we do it, it’s probably going to be very, very small. So it’s something that we always look at. It’s a big deal for those that are on Social Security. It feels like prices continue to go up everywhere yet the consumer price index, doesn’t always maybe accurately reflect that. So it’s a lot more in depth than that. We’ve got the hold harmless, which kind of ties in Medicare, and that’s a big deal. And Nate, I think you may touch on that a little bit and how that ties into the cost of living adjustment.
Nate Kreinbrink:
Right. And I think it, as James said, I mean, nothing in this is obviously official yet. We’ve got until October until that gets locked in for the upcoming year. But again, I think it’s important to understand kind of where things are trending. And as he mentioned with that consumer price index, it fell again for the month of April. So if we’re looking at that determining, that being one of the large factors, as far as when they go into determine what the cost of living adjustment is going to be for the following year, well, if that continues to keep trending down, it’s going to tend to lead us to believe that that cost of living adjustment for 2021 is going to be, as James said, 0%. and this is coming off the heels of the cost of living adjustment for 2019 at 2.7%, in 2018 at 2%, in 2017 it was just 0.3%. And then we go back to 2016 when we did have the last time that cost of living adjustment was at 0%.
Nate Kreinbrink:
So again, what does this all mean when it comes into benefits and Medicare and things like that? Well, so your cost of living adjustment, for those who aren’t aware, is that average increase on your social security benefit that gets factored in every single year, if in fact there is one. Now again, these increases aren’t substantial. We go back to last year with a 2.7% increase. It roughly was about a $21 to $22 increase on your social security benefit that every individual got every single month. So again, a little increase to try to keep up with inflation and some of those other things that are going into it. Where this comes into play and where it really has the most impact on individuals is when it comes to what their Medicare increases are on every single year.
Nate Kreinbrink:
So you have your Part A premium that the majority of people have been paying into throughout their working career. You have your Part B premium, which is your doctor care and things along those lines. That is set and that premium that you for your Part B premium is tied to your income. So there’s five tiers with the more you make the higher you’re going to pay for that Part B premium. And then your Part D, any drug plan, there’s a tier that goes into that as well. Where we see this impact when it comes into social security, is what James mentioned, was this hold harmless provision that basically, simplifying it all the way down, it basically says that your Medicare premiums cannot increase higher than what any cost of living adjustment is for your social security. So if Medicare premiums go up $10 and cost of living adjustments equal out to only a increase of $5, your Medicare premiums are only going to go up $5.
James Nelson:
Right.
Nate Kreinbrink:
So basically you’re going to be held harmless as far as those higher premiums. Now, does that mean that you’re totally forgiven from that? No, because this is where we came into again, after I said back in 2017 when we had that 0% cost of living adjustment followed by the 0.3%. So we had some very small increases there in back to back years, and then the Medicare premiums continued to rise. So what it does is it basically complicates things and makes it difficult for individuals to really get a good grasp on what they’re going to pay.
Nate Kreinbrink:
Because any amount that you are held harmless for any amount that the Medicare premiums went up that was higher than what any social security does, once we have a bigger jump, so we go back to 2019 and we had that 2.7% that larger increase, well, yes, the individuals were entitled to that increase, but what came into to fruition with a lot of that was they never really even saw any of that. Because what they were doing is they were having to catch up with some of the increases to their Medicare premiums that they maybe didn’t pay leading up to the past couple of years. So any increase was basically eaten up by, to get them back to where the actual price of Medicare premiums were at that point in time.
James Nelson:
And I think that’s, what’s so frustrating to people. It’s just, number one, it’s almost impossible to figure out because these numbers just change on an annual basis. So it’s hard for people to really track this and figure out what their benefits’ going to be. But like you describe, you’re almost playing catch up in those good years where we do have a reasonable cost of living adjustment. It’s almost like you’re chasing your tail. The Medicare premium just chews up that whole increase almost. And it’s no wonder people feel like they’re not getting any increases or any bump in their social security benefit because of the Medicare premiums going up. So yeah, I mean, that was a really good description and it’s complicated. And like we always talk about it, it’s a moving target because each year the cost of living adjustments going to be different. The Medicare Part B premiums can fluctuate a bit. It’s really difficult for people to track this. But it’s very important stuff, especially for retirees that are already on Medicare or a drawing Social Security, they’ve got to be aware of all this.
Nate Kreinbrink:
Right. And I think, again, there’s a lot of different stipulations to say, “Okay, where do I fall into this whole mix?” Obviously your income is going to determine where this comes into play. And I’ll preface that by saying that, that hold harmless provision only applies to those that are in the very lowest tier of Medicare. If you’re in the second tier or higher that hold harmless, if the Medicare premium goes up by $10 and there’s no cost of living adjustment, well, your Medicare premiums going to go up by $10.
James Nelson:
That’s a good point.
Nate Kreinbrink:
So that hold harmless thing only applies to those that are in that lowest tier of Medicare premiums, which again, that takes care of, the vast majority of people are going to fall in that lowest tier. But again, there’s different things that are going to do, to kind of affect that.
Nate Kreinbrink:
So again, when you start looking at retirement, you start looking at, okay, maximizing the social security benefit. I think this is where, again, it kind of comes in and really holds its weight as far as looking at locking in as big of a benefit as I possibly can with that Social Security benefit. Because again, and I think history has shown that consistently being able to count on that cost of living adjustment to kind of keep up with inflation is probably not going to be a good bet for you throughout your longevity of your retirement. Just because there’s going to be some years that it’s not going to be any adjustment with it. And so you’re going to be locked in.
Nate Kreinbrink:
So again, if we can come up with a plan to use other assets that we may have to lock in that larger benefit for the rest of our life, it’s going to end up being a better thing because then any, and again goes the other way too, if I have a larger benefit and I have a 2% cost of living adjustment, well, would I rather have 2% of a larger number or 2% of a smaller number. So that any cost of living adjustment then that is actually applied is going to have a bigger benefit to what you are actually collecting if you have a bigger amount that’s coming in every month.
James Nelson:
Yeah, that’s a good point. I mean, protecting that larger benefit is a huge advantage. And again, we can’t count on that cost of living adjustment. In fact, that’s been floated when they talk about shoring up Social Security and making sure it lasts. That’s one of the ideas that’s always floated. Do we get rid of the cost of living adjustment? Do we move the retirement dates and whatnot? So yeah, really banking on that cost of living adjustment probably not a great idea moving forward.
Nate Kreinbrink:
Great. And again, as James and I said, I want to say it again, I mean, obviously nothing is locked in yet. We still got some time until the middle of October where something will actually become official. But I think it’s important for people to kind of see where things are trending. And unless we have a drastic improvement in a lot of areas to raise these numbers, this is a pretty good bet as far as what we’re looking at going forward as we transition. And again, looking at the lingering effects to some of the volatility that we’ve had, and some of the events that we’ve had in the markets, nothing is going to be a quick fix. And I think this is one area where we’re going to see lingering effects for this, maybe not this year, but it will impact you in 2021.
James Nelson:
It’s going to take a lot of time to get back to where we were.
Nate Kreinbrink:
So again, questions on this, give us a call. We’d be happy to sit down and try explaining your situation a little bit farther.
Nate Kreinbrink:
But did want to mention real quick, before we run out of time, that every Friday Nelson Corp Wealth Management is wearing jeans for charity. Money raised in the month of June will be donated to The Backpack Buddies, the program, which is sponsored by the information referral and assistance services.
Nate Kreinbrink:
James, appreciate you joining me again today.
James Nelson:
Absolutely.
Nate Kreinbrink:
Again, Nate and James with Nelson Corp Wealth Management, bringing you this week’s Financial Focus. Thanks again for tuning in and have a great rest of your week.
Announcer:
Financial Focus is a production of Nelson Corp Wealth Management and Clinton and Davenport. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representatives, securities offered through Cambridge Investment Research Incorporated, a broker-dealer, member of FINRA/SIPC. Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and Nelson Corp Wealth Management are not affiliated. Cambridge does not offer tax advice.
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For more information, visit our website at www.NelsonCorp.com.