Retirement Matters

October 2022

Hearing Loss — An estimated 40 million Americans aged 50 and over have hearing loss and cope with the heavy social, emotional, and health issues that result. For example, hearing impairment can reduce your quality of life by making you feel a sense of insecurity, lead to social isolation, and puts you at higher risk of developing dementia, depression, and falling. Hearing loss is a senior issue as it usually worsens with age. Eighty percent of people in the age group 80 years and older have hearing loss compared to 10 percent of the people in their 50s. So, hearing gets worse, at a time when many retirees have used up much of their financial reserves.

Lower Hearing Aid Cost — The administration’s goal of expanding access to high quality health care and reducing costs for consumers will benefit millions of Americans. In keeping with this goal, the U. S. Food and Drug Administration has recently finalized an historic rule providing access to Over the Counter (OTC) Hearing Aids (HA). This rule will allow consumers with mild to moderate hearing impairment to buy HAs from stores or online retailers without a medical exam, prescription, or fitting adjustment by an audiologist. Previously, HAs could only be purchased through a hearing care professional’s office or specialty store, adding to the cost. The average cost of a hearing aid is about $2,300 per ear, ranging from $1,000 to $4,000, with premium models costing as much as $6,000. Those with severe hearing loss, where the OTC hearing aid isn’t a solution, will still need professional help, a prescription, and more expensive devices. It’s important to note that Michigan State employee retirees should wait for some clarification on how this rule could affect them.

Affording Essentials — The Cost-of-Living Adjustment (COLA) for Social Security is on track for one of the largest increases in history. In August, the Senior Citizen League estimated COLA for 2023 could go as high as 10.1 percent. However, based on new data it now estimates COLA will be 8.7 percent. The average retiree will receive about $144 more in their Social Security check with an 8.7 percent COLA. While retirees would like to receive a higher adjustment, this is good news because it shows that progress has been made in slowing inflation in recent months.

It’s reassuring that COLA for 2023 will be closer to what seniors need but it doesn’t make up for years of past underfunding. Previously, retirees have lost buying power because the Social Security COLA is currently based on an index designed for wage earners, not retirees. That is, when the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is applied, spending patterns for retirees in housing and medical care are underrepresented by the bread winner’s COLA. It makes it more difficult for seniors to afford what they are actually buying. Since 2000, Social Security benefits have lost about 40 percent of their purchasing power, according to the Senior Citizen League.

Medicare Costs — For the first time in more than a decade, the Part B Medicare Premium increase is expected to fall in 2023. Part B covers physician services, outpatient hospital services, selected home health services, durable medical equipment, and certain other medical and health services that are not covered by Medicare Part A. Seniors will get a break of $5.20 on their monthly premiums as they decline to $164.90 in 2023. This decrease will help to offset the 2022 increase of $21.60 in Part B costs that resulted from introducing coverage for Aduhelm, the new Alzheimer’s drug. Due to Medicare’s strict limits on the drug’s use, the drug maker cut the medication’s cost in half. This increased reserves that allowed setting the Part B premiums at a lower level in 2023. Also dropping is the annual deductible for Medicare Part B beneficiaries to $226 in 2023, a decrease of $7 from 2022.

Next, through the Inflation Reduction Act, Medicare beneficiaries’ cost sharing will be capped at $35 for a one-month supply of covered insulin, starting next July 1. Also, those covered by Medicare, taking insulin through a pump, won’t have to pay a deductible.

Despite these cost breaks, medical care is an expensive part of most retiree’s income. Based on 2018 health care data, the usual retiree has 88 percent of their total income left after paying for medical care. For those one in ten retirees with very large health care costs, they only have 63 percent or less remaining to live on, according to the Center for Retirement Research.

Asset Allocation Strategy — The Quarterly report is issued by the State of Michigan Investment Board (SMIB) that meets each quarter to review the investment performance of State pension funds. It met this September to review the investment performance through June 2022. Since 1979, the annualized rate of return on the plan assets has been approximately 9.5 percent. The Board considered several factors in an adjusted target asset allocation. Investment risks must be assumed to earn the actuarial rate of return on pensions, within the investment return available for safe assets. A key risk to be assumed through asset allocation is liquidity, or the amount of money the State has on hand and the ability to quickly convert assets into cash, to be available to pay pensions. The Board received an asset liability study from consultant Aon, describing the process to estimate expected returns and anticipated plan liabilities. The Board also reviewed an adjusted target asset allocation submitted by the Bureau of Investments in the Michigan Department of Treasury. At the September 22, 2022, meeting, the SMIB passed Resolution 2022-2 authorizing a revised asset allocation strategy.

Required Minimum Distribution (RMDs) — This is a reminder for retirees with retirement savings accounts that a minimum withdrawal is required each year starting at age 72. Avoid an unpleasant surprise by finding an accountant who can help you manage the tax on your RMD.

Editor’s note: Joanne Bump serves as feature columnist for “Retirement Matters.” Column content is time sensitive and is based on information as of 7/10/2022. Joanne can be contacted by e-mail at joannebump@gmail.com.

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