Social Security Recipients Will Get Increased Benefits in January
Seniors feeling the bite of inflation will get some relief in January. That’s when a Social Security cost-of-living adjustment (COLA) kicks in with an 8.7% increase in benefits—the biggest hike in four decades.
Why the Big Jump to Social Security Benefits?
In a word: inflation. The government bases Social Security increases on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). In September, the index came in at 8.2%.
The COLA hike is the fourth-largest increase since the government began automatic inflation adjustments in 1975. It follows last year’s COLA bump of 5.9%.
What About Medicare?
There’s good news for Medicare recipients too. In previous years, recipients saw the Social Security COLA increase reduced by rising Part B premiums. But this year, the monthly premium will actually decrease by $5.20 to $164.90. The annual deductible will also drop by $7 to $226.
The decline is due to lower-than-expected costs for Aduhelm, a drug that helps treat Alzheimer’s disease.
Will Taxes Be Affected?
Some retirees will find that the cost-of-living adjustment pushes them into income thresholds that result in Social Security benefits getting taxed.
This is because even though COLA gets adjusted each year, the income tax thresholds have not changed since 1984.
Social Security beneficiaries will pay:
No taxes if their combined income* is at or below $25,000 (single filers) or $32,000 (joint filers)
Up to 50 percent of their Social Security benefit for $25,000-$34,000 (single filers) or $32,000-$44,000 (joint filers)
Up to 85% for combined income above $34,000 (single filers) or $44,000 (joint filers)
*Combined income is considered adjusted gross income and half of a recipient’s Social Security benefits.
Will VA Benefits See an Increase Too?
Yes, they will. Veterans Affairs uses the same index as Social Security to determine VA benefit and pension adjustments. So beneficiaries should also see an 8.7% increase in January, although the finalized rates won’t be released until December.
The COLA Increase Will Help Many Americans
The increase will help more than 52 million seniors bear the brunt of inflation. In addition, it will help nearly 18 million younger beneficiaries who receive disability benefits, Supplemental Security Income (SSI), or Social Security benefits as a surviving spouse.
It can be helpful to start determining now how the increase will affect your budget in the new year. Our fiduciary wealth management firm in California and Utah helps clients adjust their cash flow to changes in their life and the economy, like Social Security increases. Schedule a complimentary, 15-minute call with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor with offices in Roseville and Folsom, CA, and Lehi and Logan, UT. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.