Main menu

Pages

Record rise in Social Security cost of living about to start soon

featured image

Social Security beneficiaries will soon receive the biggest increase in their benefits in more than four decades, with the pension program set to increase by 8.7% in 2023.

The increase, known as a cost of living adjustment (COLA), is the biggest since 1981, when beneficiaries jumped 11.2%. This will increase the average monthly benefit by approximately $140.

More than 66 million Americans who receive Social Security will receive the highest payments starting in January, according to the Social Security Administration.

The higher payments came in response to the highest inflation in four decades: prices paid by US consumers hovered around a four-decade high from August to October, the period when the COLA is calculated.

IRS DELAYS NEW TAX REPORTING RULE ON VENMO AND PAYPAL PAYMENTS OVER $600

Social Security

More than 64 million Americans who receive Social Security will receive the highest payments starting in January. (Kevin Dietsch/Getty Images/Getty Images)

“An 8.7% Social Security cost-of-living adjustment is rare — take advantage of it now,” said Mary Johnson, policy analyst at the Senior Citizens League. “This could be the first and possibly the last time that beneficiaries today receive such a high COLA.”

Still, benefit increases over decades aren’t always good news for beneficiaries, according to Johnson.

Higher Social Security payments are a little tricky. They can reduce eligibility for low-income safety net programs like food stamps and can lead people to higher tax brackets. Bigger payouts, essentially, don’t necessarily result in more money in people’s pockets.

Social Security benefits become taxable when one-half of the benefit amount, plus all of your other income, including tax-free interest, exceeds $25,000 if you are single, head of household, or qualifying widower( a) or US$32,000 if married filing jointly.

DO YOU STILL NEED YOUR TAX REFUND? THE IRS WILL SOON PAY 7% INTEREST

Some seniors may never have owed taxes on their benefits, but that will likely change next year when they file their tax returns. Indeed, the Congressional Budget Office has estimated that the taxable share of Social Security benefits could grow by 10% this year and another 10% in 2023. Altogether, the total income tax paid on that money is expected to rise 37% this year. .

Additionally, the Social Security trust fund is estimated to receive more than $45 billion in tax benefits in 2022 – a huge increase from 2021, when it raised about $34.5 billion, according to the program’s curators.

“There may be some long-term effects to high-inflation COLAs,” Johnson said. “It’s like a no-win situation.”

IRS SAYS YOUR TAX REFUND MAY BE LESS IN 2023 – HERE’S WHY

Higher monthly income can also reduce seniors’ eligibility for low-income programs like SNAP, the Supplemental Nutrition Assistance Program (food stamps).

The benefit in 2022 jumped 5.9%, representing an average monthly increase of $92 for retired Americans, bringing the total amount to $1,657, the Social Security Administration announced last year.

american inflation

Shoppers inside a grocery store in San Francisco, California, on May 2, 2022. (Photographer: David Paul Morris/Bloomberg via Getty Images/Getty Images)

rising inflation it has eroded all of the increase, however, with beneficiaries losing 46% of their purchasing power – or about $508 – every month during the year, according to calculations by the League of Senior Citizens.

Furthermore, the extraordinarily large COLA could push the Social Security insolvency date forward by depleting funds more quickly.

The average monthly benefit would have to increase by $417.60 for retirees to maintain the same level of purchasing power as in 2000.

CLICK HERE TO READ MORE ABOUT FOX BUSINESS

Comments