Social Security payments receive an inflation adjustment every year based on the Consumer Price Index (CPI). If inflation continues at current levels over the next 2 months, Social Security recipients will see their monthly check amounts increase by about 9.6% in 2023. For example, the average Social Security recipient receives a monthly benefit of $1,688. A 9.6% increase is around $160 per month which represents about $1,900 extra income over the course of one year.
When determining the increase amount, the Social Security Administration looks at average inflation figures for July, August, and September and compares them to the prior year’s figures. That means we will have to wait until September’s data is in before the final amount is determined and announced in October.
While an increase in benefits is welcome, the intent of the COLA is to preserve purchasing power. This year’s COLA was 5.9% which failed to keep pace with inflation. Furthermore, single taxpayers with income of more than $25,000 and married couples with income over $32,000 pay income tax on a portion of their Social Security benefits. If you have income above those levels outside of your Social Security check, you will likely see an increase in your tax bill.
Wage earners pay--and employers match--a 6.2% Social Security tax on earnings up to $147,000 in 2022. That limit, which is linked to the national average wage index, is projected to increase 5.5% to $155,100 next year.
As a side note, for retirees on Medicare, Part B premiums, which are typically deducted from Social Security checks, rose 14.5% to $170.10 a month in 2022. These premiums are not expected to change in 2023. Medicare Part B covers outpatient care such as doctor visits.
If you have specific questions pertaining to Social Security, such as when the optimal time for you to start collecting might be, or want to learn more about Medicare and the various options available to enhance your benefits, please contact us. We are happy to have a no-commitment conversation.
Written by author: Jarrod Jacobi | Senior Financial Advisor | AWMA®
*The foregoing content reflects the opinions of Van Hulzen Asset Management DBA "Van Hulzen Financial Advisors" and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.