This year’s cost-of-living increase for Social Security recipients could be one of the greatest since 1981, but some economists caution individuals not to get too happy yet. Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is the basis for the annual cost-of-living adjustment (COLA) for social security benefits.
During the month of June, CPI-W jumped 9.8 percent from a year earlier, the highest increase since October 1981 and exceeding the broader headline growth of 9.1 percent. A COLA of 10.5% could be expected next year, up from a 5.9% rate last year, says Senior Citizens League policy analyst Mary Johnson. According to her, the average retiree’s $1,668 monthly payment would rise by $175.10 with a 10.5% COLA.
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The 5.9 percent boost that retirees received this year is already considerably over the 40-year high inflation rate, so any COLA increase would be good. However, Johnson cautions that retirees may not receive the full increase and may wind up with less.
FALLING BEHIND: Despite a large COLA increase, Social Security recipients have lost purchasing power this year.
Medicare Part B premium hikes aren’t factored into CPI-W. Thus, COLA doesn’t include them either. In other words, while COLA grew by 5.9%, the greatest rise since 1982, Part B increased by a whopping 14.5 percent, among the largest increases in the program’s history. As of 2022, “benefit recipients are still stinging from the automatic deduction of the Part B premium from their Social Security checks,” Johnson stated.
Higher Earnings May Necessitate a Rise in Taxes
Social Security benefits may seem nice if you have provisional income exceeding $25,000 or $32,000 for a married couple, but remember that those earnings may be taxable. The IRS determines provisional income by combining the recipient’s adjusted yearly gross income, tax-exempt income, and 50% of all Social Security benefits.
“As time goes on, more and more seniors are affected by this tax,” Johnson added. In other words, “High COLAs will expedite this.” In a report from 2022, the Social Security Administration in the United States predicted that 40% of all pensioners in the country pay taxes on their benefits. Retirees who haven’t paid taxes on their benefits in the past may be forced to do so in 2022 because of the 5.9 percent hike and even more if the COLA experiences another significant jump in 2023.
This once-in-a-lifetime COLA hike could lead to permanent higher taxes for many seniors because income limits are not modified like conventional tax levels, she added. Because of the expected high rise in 2023, we strongly recommend that Social Security claimants consider having money withheld from their payments if they think that they will be affected.”
My Social Security account” can be set up online by those who are beneficiaries.
Increased Earnings May Result in Reduced Government Assistance
People may be excluded from receiving some benefits because their salaries are boosted by higher social security payouts. Adjusted benefits for low-income Medicare recipients include health and prescription medication coverage. The higher your income, the more likely you will be pushed into a higher Medicare Part B and Part D price band.
In the long run, an increase in Social Security benefits might have a negative impact on your overall financial well-being, according to Johnson.
People may be excluded from receiving some benefits because their salaries are boosted by higher social security payouts. Adjusted benefits for low-income Medicare recipients include health and prescription medication coverage. The higher your income, the more likely you will be pushed into a higher Medicare Part B and Part D price band.
In the long run, an increase in Social Security benefits might have a negative impact on your overall financial well-being, according to Johnson.
