Social Security, other benefits increases will help ease impacts of inflation for retirees
Delaware County Daily Times (Primos - Upper Darby, PA)
With inflation at multi-decade highs, retirees are feeling the squeeze as they grapple with the effects of rising prices on gasoline, housing, medical expenses and groceries, to name a few. With the Federal Reserve aggressively fighting inflation by raising short term interest rates, both the stock and bond markets have experienced substantial declines, adding further stress to an already stressful environment.
These circumstances have caused many retirees to cut back on spending. However, a slight reprieve has come in Social Security's 2023 Cost of Living Adjustments (COLA) of 8.7%, which marks the biggest increase in nearly forty years and trumps this year's COLA increase of 5.9%.
Roughly 70 million Americans receive benefits from Social Security, the majority of which are seniors who will see a boost to their monthly benefits starting in January 2023. With the average Social Security benefit at $1,657, this means that social security beneficiaries will see an increase of $144 per month and in some cases, even more. Even if retirees aren't collecting benefits, those age 62 and older are still eligible for this year's COLA.
Additional welcome news came from the Center for Medicare & Medicaid Services (CMS), which recently announced decreases in Medicare Part B premiums, deductibles and coinsurance for 2023. Medicare Part B premiums, which are automatically deducted from Social Security benefits, will be $164.50. This is a slight decrease of $5.20 from $170.10 for this year. Income Related Monthly Adjustment Amounts, or IRMAA, applies to high income beneficiaries. Medicare Part B annual deductible also declined by $7 from $233 to $226. Medicare Open Enrollment starts Oct. 15 and ends Dec. 7.
Cost Of Living Adjustment (COLA)
Designed to help seniors keep pace with inflation, historically, COLAs were given infrequently and required Congressional approval. However, since 1975, COLAs have been given automatically and based on changes in the Consumer Price Index, for urban wage earners and clerical workers, or CPI-W (using third quarter data, or July, August and September). Given that the CPI-W measures the cost of working Americans living in mainly urban centers, there has been discussion to use the experiential Consumer Price Index for the Elderly or CPI-E, a measure which more accurately reflects the spending patterns of the elderly with a greater focus on healthcare and housing and less on food, transportation, etc.
Maximum Wage Base
The Social Security tax rate of 7.65% (6.2% Social Security, 1.45% Medicare) paid by both employer and employee for a total of 15.3% remains the same. However, the maximum earnings subject to taxes have increased significantly from $147,000 in 2022 to $160,200 in 2023. An additional 0.9% Medicare tax applies to individuals or married couples filing jointly with earned income more than $200,000 and $250,000 respectively.
The earnings limits for 2023 have also increased. For those collecting social security before full retirement age, social security will withhold $1 in benefits for every $2 above $21,240. The previous limit was $19,560. The year an individual reaches full retirement age (specifically the months prior), $1 in benefits will be withheld for every $3 in earnings above $56,520. Previously, the limit was $51,960.
From a financial planning standpoint, careful consideration should be given to any potential tax implications as it relates to COLA with a keen focus on tax reduction strategies, including but not limited to, charitable giving, especially for those at RMD age 72 paying down debt or reinvestment of surplus funds.
To understand more about your social security benefits and other important details please log on to your own personal account at https://www.ssa.gov/myaccount/ or meet with your financial planner.
Donald Lyons is a Wealth Strategist with Bryn Mawr Trust. With 20 years of experience in wealth management, he provides high net worth clients with fiduciary and investment management services. Lyons is a Certified Financial Planner professional as well as a National Social Security Advisor. He holds a master's degree in business administration from Pennsylvania State University and a bachelor's degree in business administration from Temple University.