Recently the Social Security Administration (SSA) announced a historic cost of living adjustment (COLA) for 2023.
What It Is:
On a yearly basis, the SSA reviews the general cost of living and adjusts its benefits offerings. For the upcoming 2023 calendar year, the COLA[i] increased by the highest amount in over 40 years at a rate of 8.7% — a direct response to continuing inflation that hit 8.2% year-over-year in September 2022. The COLA translates into an increase from $1,680 to $1,827 for the average retired worker’s monthly benefit, according to the SSA.
And thankfully, in line with the increasing COLA, beneficiaries will experience a decrease in standard premiums for Medicare Part B, which is set to fall to $164.90[ii] starting in January. Medicare Part B payments are often directly deducted from monthly SSA allotments before they reach recipients’ bank accounts.
It’s worth noting these SSA changes will impact approximately 70 million people.
Why This Year Is Different:
The impact of the annual COLA has perhaps never before been more substantial, as the average increase is set to be more than $140 per month[iii] beginning in January 2023. This will hopefully help seniors and retirees experience some relief from the rising cost of goods and services. Historically, a COLA that fails to keep pace with inflation only exacerbates financial hardships.
How It Will Impact Seniors and Non-Seniors:
Seniors Taking Social Security
While this increase is good news for seniors, it’s not license for those taking Social Security to change spending habits all that much–as most seniors know all too well.
It will still be necessary to keep track of your finances, spending – and, importantly, your tax liabilities; some beneficiaries could experience increased taxes in the coming years, depending on their thresholds.
Seniors Not Taking Social Security
Seniors who have not taken Social Security will still reap the benefits of this increase even if they don’t take Social Security this year. (There is never a decrease in the COLA, so the higher payments are here to stay.) Keep in mind that, in some cases, it’s worth holding off taking Social Security for several years once you’re eligible. Of course, the benefits of doing so vary based on individual circumstances.
This significant increase in SSA payments could decrease the number of years through which Social Security is fully funded. Currently, the program can pay through 2035, but that could decrease by at least a year[iv] as a result of the COLA.
That said, higher wages tied to inflation could help replenish Social Security funds. And relatedly, Americans not taking Social Security will see the amount of income subject to the Social Security tax increase[v] this year.
Ultimately, some of my youngest clients and children of clients, many don’t expect Social Security[vi] to be fully available when they retire. For those who are worried about Social Security’s future, I encourage you to focus on what you can control – building a retirement plan while time is on your side. Now is the time to reach out and begin considering alternative options for retirement.
With that said, I understand that financial planning is not always easy and the COLA changes could raise questions, especially for those at or nearing retirement. If you or anyone in your family has questions about retirement, please feel free to reach out. Emerald Advisors is here as a resource for you and your loved ones.
[ii] (2022, September 27). CMS.gov. 2023 Medicare Parts A & B Premiums and Deductibles 2023 Medicare Part D Income-Related Monthly Adjustment Amounts. [Online] Available at: 2023 Medicare Parts A & B Premiums and Deductibles 2023 Medicare Part D Income-Related Monthly Adjustment Amounts | CMS
[iii] Nesbit, J. (2022, October 13). Blog.ssa.gov. COLA: Social Security Benefits Increase in 2023. [Online] Available at: Social Security Benefits Increase in 2023Social Security Matters (ssa.gov)
[iv] Konish, L. (2022, October 13). Cnbc.com. Social Security cost-of-living adjustment will be 8.7% in 2023, highest increase in 40 years. [Online] Available at: Social Security COLA will be 8.7% in 2023, highest increase in 40 years (cnbc.com)
[v] (2022). Ssa.gov. Cost-of-Living Adjustment (COLA) Information. [Online] Available at: Cost-of-Living Adjustment (COLA) Information | SSA
[vi] Leonhardt, M. (2021, January 6). Cnbc.com. Roughly 1 in 4 younger Americans believe Social Security won’t be available when they retire. [Online] Available at: Social Security: Gen Z, millennials say it’s unlikely they’ll get it (cnbc.com)