Social Security recipients will get a big boost next year: benefits are expected to rise 8.7% in 2023, the largest increase in more than 40 years.
The annual cost of living adjustment, or COLA, aims to keep benefits in line with inflation, which, while easing slightly since earlier this year, has remained stubbornly high. According to the Senior Citizens League, author of the projection, the expected adjustment, which was recently updated to reflect the August consumer price index, will increase the average retirement benefit of $1,656 by $144.10.
In October, the Social Security Administration will announce the actual COLA for 2023. The increase is based on a calculation that compares the average consumer price index from the third quarter of 2022 with data from the same period last year. The index used in the calculation is the consumer price index for urban wage earners and white-collar workers, or CPI-W. That index rose 8.7% last year, while the consumer price index for all urban consumers (CPI-U) rose 8.3%.
While the COLA will be welcome news for the roughly 66 million Social Security beneficiaries, including 51 million receiving retirement benefits, it will nonetheless come late for seniors struggling to afford the rising prices for the 5.9% increase. this year. In addition, the boost will likely subject more of certain beneficiaries’ benefits to federal income taxes. If you file an individual tax return and your income is between $25,000 and $34,000, you may be required to pay income tax on up to 50% of your distributions; if your income is over $34,000, up to 85% of your benefits may be taxable. For couples filing jointly, if you and your spouse have income between $32,000 and $44,000, you may be required to pay income tax on up to 50% of your distributions; if your income is over $44,000, up to 85% of your benefits may be taxable.
Higher income may also disqualify some beneficiaries from need-based assistance programs.
The COLA could push some higher earners into the bracket where they have to pay income-adjusted Medicare premiums. By 2022, individuals with an income of more than $91,000 in 2020 and couples with an income of more than $182.00 in 2020 must pay more than the standard Part B premium of $170.10 per month per person. Higher earners also pay more for Part D drug plans.
Medicare Part B premiums are automatically deducted from most retirees’ Social Security checks. The Part B premium for 2023 will be announced later this fall and beneficiaries have good news: the premium is not expected to increase much, if at all, after a more than normal increase this year to cover expected costs. to Aduhelm, an Alzheimer’s drug whose cost and coverage have since been scaled back.
Write to Elizabeth O’Brien at [email protected]