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Social Security Cost of Living Adjustment - COLA

 

 

 

 

 

 

 

 

 

The new COLA, 8.7%, is big — the biggest since 1981, when the adjustment was 11.2%. These automatic, yearly inflation increases began in 1975, during a decade of high inflation. Before then, it took action from Congress to raise benefit levels.


This increase will be compounded in your Social Security income, year after year. And, if prices continue to rise as they have, there will be another large COLA for next year.
Even for affluent people, the inflation adjustments will be significant.


That’s the good news. The bad news is that inflation was 8.2% year-to-date and still climbing.


The increase in benefits starts in January for those who are currently collecting Social Security. It won’t equal exactly
8.7% because of other adjustments, such as Medicare Part B premiums or income taxes withheld.


More bad news / good news:
The COLA could move some individuals and couples into a higher tax bracket starting in 2023.

 

The 8.7% COLA is applied to everyone receiving Social Security; it is the gross figure. Often, a COLA increase is at least partly offset by an increase in the Part B Medicare Premium. However, for 2023, the standard Part B Premium will drop from $172.10 monthly in 2022 to a monthly premium of $164.90 in 2023. This rarely happens; the last time the premium went down was 2012.
 

The Social Security Administration will notify all current recipients about the new benefit amount for 2023 in December.
 

You can also sign into your own account at ssa.gov later this year to find your new benefit amount.
 

For those who are retired but have not started to collect Social Security, there is even more good news. When you file, either at Full Retirement Age (FRA) or at age 70, your benefit will have been increased by the sum of all of the COLAs since turning 62, the earliest age to take Social Security.
 

The increase should not change your thinking about when to begin taking Social Security. The benefits of deferring until
FRA or age 70 still apply.

 

For those of you who are working and collecting Social Security and have not reached FRA, you will receive the COLA on your benefit amount and, in addition, the amount you can earn before some benefits are reduced has been increased. (If you have reached FRA, you are exempt from limits on how much you can earn without impacting your benefits.)
 

What if you are still working but hoping to retire soon? In the face of continuing inflation, stock and bond market instability and a potential recession, it makes sense to keep working for a while longer. This gives you the opportunity to put away more money in retirement accounts, employer sponsored as well as individual. You will also potentially increase your monthly Social Security benefits over the long term.
 

For those of you who are working and probably will be for a while, know that the COLA benefit provides some built-in
protection for when inflation heats up the next time – as we know it will.

 

No matter what stage of your financial life, it is vital to focus on your plan and the benefits of a long-term investment view.
 

Please feel free to call (215-836-4880) or email the office (ellend@regardingyourmoney.com) to set up an appointment to discuss the changes to Social Security or any other financial questions you may have.

Sources: Financial Advisor, New York Times

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