Kathryn Ziegler | Digital Vision | Getty Images
With inflation keeping prices high in 2022, Social Security beneficiaries may look forward to a standard cost of living adjustment in 2023.
“Your Social Security benefits will increase 8.7% in 2023 due to the rising cost of living,” the Social Security Administration states in the annual data it currently sends to beneficiaries.
The increase of 8.7% would be the highest in 40 years. It also represents a significant upside from the 5.9% cost-of-living increase that recipients saw in 2022.
The increase is “kind of a double-edged sword,” according to Jim Blair, a former Social Security director and co-founder and principal advisor at Premier Social Security Consulting, which educates consumers and financial advisors about the program’s benefits.
More personal finance:
Why more workers need access to retirement savings
If you don’t want to, avoid this Social Security surprise
Why covid may be ‘the next public health disaster’
“It’s a good thing for people on Social Security,” Blair said. “It’s not good for the economy with inflation.”
Social Security benefit checks will reflect the increase beginning in January.
The average retiree’s benefit will increase by $146 per month, to $1,827 in 2023 from $1,681 in 2022, according to the Social Security Administration.
On top of that, standard Medicare Part B premiums will drop about 3% next year to $164.90, which is a decrease of $5.20 from 2022. Medicare Part B covers outpatient medical care including doctors’ visits. .
Monthly Part B premium payments are often deducted directly from your Social Security checks. As 2023 premiums drop, beneficiaries are preparing to see a further 8.7% increase in monthly Social Security checks.
“The good news about these letters is that people are 100% aware of the 8.7% increase,” said David Freitag, financial planning consultant and social security expert at MassMutual.
“Of course, the economy is inflating at a frightening rate, but that’s the value of the cost-of-living-adjusted benefits from Social Security,” Freitag said.
He noted that few other income streams in retirement offer cost-of-living adjustments.
What to look for on your Social Security statement
Justin Paget | Digital Vision | Getty Images
If you’re wondering how much to see on your checks, a personal letter from the Social Security Administration will give you a breakdown of what to expect.
This includes the new monthly benefit amount for 2023 before deductions.
It will also tell you the monthly 2023 deduction for Medicare Part B premiums, as well as Medicare Part D, which covers prescription drugs.
The statement will also show your deduction for voluntary tax withholding.
After these deductions, the statement shows how much will be deposited into your bank account in January.
Blair noted that you don’t necessarily have to receive your Social Security checks now to take advantage of the record increase for 2023.
“The good news is, you don’t have to apply for benefits to receive a cost-of-living adjustment,” Blair said. “You just have to be 62 or older.”
When can you pay the premium Medicare surcharge?
If your income is above a certain amount, you can pay an additional fee called the Income Related Monthly Adjustment Amount, or IRMAA, on Medicare Parts B and D.
This year, that will be determined by your 2021 tax returns, including adjusted gross income and tax-free interest income. These two amounts are added together to get your adjusted adjusted gross income, or MAGI.
In 2023, these IRMAA premium rates kick in if your adjusted adjusted gross income is $97,000.01 or higher, and you file your tax return as single, head of household, eligible widow, widower, or married separately; or $194,000.01 or more if you are married and filing together.
Notably, just a $1 increase can put you in a higher category.
“It’s important for everyone to make sure that the amount of adjusted gross income they’re using for IRMAA surcharges is consistent with what they filed on their tax return two years ago,” Freitag said.
If the information does not match, he said, you will have to “make an appeal.”
Because IRMAA surcharges can be so significant, Freytag said, this is an area to watch for errors.
When do your Medicare surcharges resume?
If your income has decreased since your 2021 tax return, you can appeal your IRMAA.
This applies if you were affected by a life-changing event and your adjusted adjusted gross income fell to a bracket or below of the lower amounts in the scale.
Eligible life-altering events, according to the Social Security Administration, include marriage; divorce or annulment; Death of a Spouse You or your spouse have reduced your working hours or stopped working altogether; you or your spouse have lost property income due to a disaster; you or your spouse experienced a suspension, termination, or reorganization of your employer’s pension plan; or you or your spouse received a settlement from your employer or former employer due to bankruptcy, closure, or reorganization.
To report this change, beneficiaries need to fill out an SSA-44 form with the appropriate documentation.
How can higher benefits cost you
Andrew Brett Wallis | Photo Bank | Getty Images
Freytag noted that since your Social Security income is higher at 8.7% COLA, this could also push you into a different IRMAA class or tax bracket.
That, he said, requires careful monitoring of your income.
Keep in mind that two years into the future you could run into IRMAA machine problems if you’re not careful.
In addition, more Social Security benefits may be subject to income taxes. Up to 85% of Social Security income may be taxed based on a unique formula that also affects other income.
It’s a good idea to have taxes withheld from your Social Security benefits in order to avoid tax liability when you file your income tax returns, according to Mark Kenner, CPA and co-founder of Premier Social Security Consulting.
“Do it as soon as you can,” Keener said of filling out a voluntary reservation request form.
To gauge how IRMAA or benefits taxes will affect you going forward, it may help to consult a tax advisor or CPA who can help determine tax-effective strategies, Freitag said.
#record #Social #Security #cost #living #increase #begins #heres #beneficiaries #annual #statements