Give and Take

$22Lots of important financial announcements came down from the government this week that should be of interest to retirees and those looking to retire in the near future. As usual with Washington, there’s some good news and some bad news. Here’s a quick look…

For those who are still working and can contribute to some type of retirement plan, there is an opportunity for you to sock away a little bit more in 2015. If you have a 401(k) or a 403(b), the personal contribution limit for 2015 will be $18,000. If you’re over 50, you can add a catch-up amount of up to $6,000. If you have a SIMPLE IRA in place, your maximum contribution amount in 2015 is $12,500, with a 50+ catch-up amount of up to $3,000. The contribution limits for a tradition IRA will remain static at $5,500, with a 50+ catch-up of $1,000.

If you are over 65 and are receiving Medicare benefits, you can stop worrying about a potential increase in your Part B (medical insurance) premiums. The cost will hold steady for another year at $104.90 if your annual income is less than $170,000 for couples and $85,000 for single filers. The annual deductible for Part B will also stay the same at $147.

But as we all know, the government giveth and the government taketh away. This year’s Medicare Part A (hospital insurance) deductible will increase from $1,216 to $1,260, and the Part D (prescription coverage) deductible will go up $10 to $320. The average cost of Part D plans is rising by about 4%, but some available plans will register double-digit premium increases. That’s why it’s a good idea to take advantage of the Medicare open enrollment period between Oct. 15 and Dec. 7, 2014 to research your options. Go to this link , enter your current drug information and check to see which company will be offering the best deal for you in 2015.

The dreaded Part D “donut hole” coverage will change too. In 2015, you’ll enter the hole once you reach your plan’s initial coverage limit of $2,960 and you’ll emerge after you’ve spent $4,700. While you’re in the coverage gap, you’ll pay 45% (down from 47.5% in 2014) of the cost for brand name drugs and 65% (down from 72%) of the cost for generics. This is further progress in the planned 2020 closing of the donut hole as part of the Affordable Care Act.

If you’re collecting Social Security benefits, there’s a small ray of sunshine coming your way. You can expect to see a cost of living adjustment (COLA) of 1.7%, which translates to an additional $22 per month in the pocket of the average recipient. This COLA amount reflects the low and slow rates of inflation that the current economy is generating, but there is a good deal of controversy surrounding the calculation of the COLA as it applies to elderly U.S. residents.

Each year the Bureau of Labor Statistics calculates the CPI-W, which is supposed to reflect changes in the cost of living for all “urban wage earners and clerical workers”. Social Security COLAs are directly linked to this index. Many have argued that this index fails to mirror the actual expenses of our country’s retirees, who routinely spend more than the average citizen on health care and who may struggle to pay escalating property taxes with relatively static income.

Congress and the President have considered changing the formula for Social Security increases by using a new, experimental index called the CPI-E, which stands for “elderly” and is supposed to be a truer representation of retiree spending. Using this benchmark would likely result in a 2/10ths of a percent increase over the traditional CPI-W.

But there has also been talk of using a chained-CPI formula, which shows changes in spending as less expensive goods (or no goods at all) are substituted for those that rise in cost. If this type of index was linked to Social Security, the COLA would probably drop by 3/10ths of a percent.
Stay tuned to see how that debate plays out in the future as Congress continues to consider Social Security reform in 2015.

Blog by Holly Deni