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Bob’s Journal for 12/10/20

Published on: Dec 10 2020

How Social Security’s ‘Hold Harmless’ Rule Protects Beneficiaries

A number of joint Social Security and Medicare beneficiaries are learning the importance of Social Security’s “hold harmless” rule.

The rule protects Social Security beneficiaries from having their net benefits reduced by an increase in their Medicare Part B premiums. It applies only to Social Security beneficiaries who have their Part B premiums deducted from their Social Security benefits.

The hold harmless rule says that when the Part B premium increases from one year to the next, your premium can’t increase more than the dollar amount your Social Security benefit increases.

The Social Security Cost of Living Adjustment (COLA) is based on the changes in the Consumer Price Index (CPI). But the Part B premium is adjusted based on projected costs of the Medicare system.

There have been a few recent years when there was little or no increase in the CPI and therefore in Social Security benefits, but Part B premiums increased. In other years, Part B premiums increased far more than Social Security benefits.

For 2021, Part B premiums are increasing by $3.90 per month or 2.70%. Social Security benefits are increasing only 1.3%.

Most Social Security beneficiaries will pay the full increase in Part B premiums because the dollar amount of the increase in premiums will be less than the dollar amount increase in their Social Security benefits. But some beneficiaries will have their Part B premium increases limited by the hold harmless rule.

The hold harmless rule applies only to the base Part B premium, which is $148.50 in 2021. It doesn’t limit increases in the Medicare premium surtax (or IRMAA) or increases in premiums for Part D prescription drug policies or Medicare supplement policies.

The rule also applies only when Part B premiums are deducted from monthly Social Security benefits. Beneficiaries who chose to pay their premiums separately, instead of having them deducted from Social Security benefits, aren’t protected. Also not protected is anyone who is enrolled in Medicare Part B but hasn’t started receiving Social Security benefits. The rule also doesn’t protect someone who enrolls in Medicare Part B for the first time in 2021.

Ancestry and DNA Kits Can Lead to Estate Plan Turmoil

An increasingly popular, year-end gift is an ancestry or DNA kit. Few people realize these kits can send estate plans into disarray.

These kits usually involve the recipient depositing saliva or some other sample in a test tube and shipping it to the testing company. The company analyzes the sample and generates a report that lists the regions from where the individual’s ancestors were from and diseases the individual might inherit.

The kit company also compares the DNA in the sample to others in its database, and the report includes a list of other people to whom the individual might be related.

This is where estate plans can be sent into turmoil. Long-lost or unknown relatives might learn about their potential relationship to your family through the kit company.

There have been cases in which such unknown relatives learned about their relationships from the DNA kits in time to assert claims to part of an estate. Such events are likely to be more common in the future.

You aren’t in the clear if you never had an affair. In some cases, a parent or even an uncle or aunt had an out-of-wedlock child the rest of the family didn’t know about until the connection was made by an ancestry kit company.

You might want to write your will and other documents to guard against claims by unknown relatives. For example, wills generally are written broadly to include all of a person’s “issue” plus adopted children. That’s done to ensure someone isn’t accidentally disinherited.

But with the spread of ancestry testing, you might want to limit shares of your estate to people you specifically name in the will and any trusts. That would avoid having a previously unknown relative claiming a share of the estate by qualifying under broad language in the will or state law.

A Look at Potential Social Security Reforms

We know that, at some point, changes need to be made in Social Security.

The retirement trust fund will run out of money in 2034, according to the latest report from the Social Security trustees. But it probably will be out of money before then, because the current recession harmed the system more than the trustees anticipated in the last report.

If across-the-board benefits cuts of 20% or more are to be avoided, Congress has to act.

But how will Congress close the gap between promised benefits and the system’s resources?

Two members of Congress have separate proposals that take different approaches.

John Larson (D-CT) generally would raise taxes. Sam Johnson (R-TX) generally would reduce benefits. Most likely the final changes will be a combination of these two.

The Urban Institute prepared a comparison of these two proposals and shows how they would affect different beneficiaries over time. The institute used a computer model it developed to show how taxes and benefits will change over many decades.

The analysis is interesting, because it shows specifically how different changes would affect both the system’s finances and the costs and benefits to beneficiaries of different income levels. The analysis also is interactive, allowing the viewer to change some factors and see how that changes the results.

The Data

New unemployment claims jumped to their highest level since Sept. 19, increasing by 137,000 to 853,000. Continuing claims also increased by 230,000 to 5.76 million.

But claims under the special programs created for the pandemic declined. Benefits for those programs are set to expire after Dec. 31 if Congress does not extend them

Total claims under all unemployment compensation programs declined by 1.12 million to almost 19 million.

Last week’s Employment Situation reports revealed that the labor market’s growth slowed a lot in November.

About 245,000 new jobs were created in November. That is about half the number economists were expecting and about half of the average job growth in the three previous months. In October, 610,000 jobs were created.

So far, the economy has recovered about 12.3 million of the 22 million jobs that were lost in March and April. Analysts who have done the math estimate that if the rate of job growth in November continues, we won’t return to pre-pandemic employment levels until 2024.

The JOLTS (Job Openings and Labor Turnover Survey) report is more detailed than the Employment Situation reports but lags them by a month.

The JOLTS report for October found little change in the labor market from September to October. The number of job openings was close to unchanged, as were the rates of quits and layoffs.

Over 12 months, the JOLTS report estimates a net employment loss of 5.7 million over the last 12 months.

The Consumer Price Index increased 0.2% in November and 1.2% over 12 months. Excluding food and energy, the index increased 0.2% for the month and 1.6% over 12 months.

Factory Orders in October increased 1.3%. Core capital goods, considered a measure of business investment, increased 2.4%.

Optimism among small business owners decreased a bit in November. The Small Business Optimism Index from National Federation of Independent Businesses (NFIB) was reported as 101.4, down from 104.0 in October.

Productivity increased in the third quarter at an annual rate of 4.6%. Unit labor costs decreased at an annual rate of 6.6% for the quarter.

The Markets

The S&P 500 rose 0.02% for the week ended with Wednesday’s close. The Dow Jones Industrial Average gained 0.57%. The Russell 2000 increased 3.57%. The All-Country World Index (excluding U.S. stocks) added 1.00%. Emerging market equities jumped 1.35%.

Long-term treasuries rose 0.36% for the week. Investment-grade bonds declined 0.55%. Treasury Inflation-Protected Securities (TIPS) added 0.36%. High-yield bonds gained 0.20%.

On the currency front, the U.S. dollar declined 0.08%.

Energy-based commodities increased 0.17%. Broader-based commodities fell 0.92%, while gold gained 0.75%.

Bob’s News & Updates

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Seriesclick here.

A recent five-star review of my book on Amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my Amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.

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