Planning for our end-of-life is a difficult topic. Most of us don't like to think…
In 2023, Medicare Part B premiums will be reduced and the cost of living adjustment (COLA) will be the highest in decades. It is being touted as a win for the American people. According to the Social Security Administration, there will be an 8.7 percent cost of living adjustment to benefits, the largest increase in more than four decades. The substantial hike is primarily in response to the highest inflationary pressures the country has seen in four decades. The COLA benefit increase of 8.7 percent also applies to Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) beginning in January 2023.
A Much Needed Benefits Increase
Analyst Mary Johnson who tracks COLA data for The Senior Citizens League (TSCL), says, “This may be the first and possibly the last time that beneficiaries today receive a COLA this high.” On average, the upcoming increase for approximately 70 million Americans in Social Security benefits will be more than $140 a month beginning in January, bumping the average benefit to $1808.14. Nearly seven out of ten retirees rely primarily on their Social Security benefits as a primary retirement income source. This increase will provide some relief to offset inflation but still does not keep pace with what Americans have already spent during 2022.
Fallout from Skyrocketing 2022 Inflation
The US inflation rate in 2022 ran as high as 9.06 percent in June and consistently ranked in the 8 percent range. The COLA benefits increase for 2022 was a 5.9 percent increase. Overall, the American consumer on a fixed budget relying heavily on their Social Security benefit lost money to inflationary pressures. Some seniors had to make hard choices or rotate purchases for food, medications, gasoline, and utility bills. The COLA increase comes a year after prices have increased, and the inflation adjustment for 2023 reflects 2022 prices.
The Affect on Medicare Part B Premiums
In the case of Medicare Part B, the premium increase in 2022 was 14.5 percent. Much of the Part B increase was in anticipation of Medicare spending for the new Alzheimer’s drug Aduhelm which some felt was underwhelming in its efficacy. Since then, the expensive drug has seen a price reduction by half. Medicare plans to “pass back” the savings with a reduction in 2023 Part B premiums for beneficiaries. However, 2023 premiums will only decrease monthly by $5.20 to $164.90, which is still well above $148.50 before the jump to $170.10 in 2022. So the premium reduction is because the increase in the previous year was too high.
Taxes Reduce the Actual Amount of Benefits Received
Individuals will continue to receive less overall than inflation because of the growing percentages of benefits being taxed (since 1984). Barrons, which covers US financial data, relevant statistics, and market developments, cites that as much as 85 percent of your benefits can be taxed. This situation is irresponsible governance to those on a fixed income as contributions to Social Security are made with after-tax money. Additionally, this “double tax” situation introduced in the 1980s did not index the thresholds to inflation, resulting in taxation that once only affected about ten percent of Social Security beneficiaries and now affects nearly half.
Benefits Recipients Still Need Help to Understand the Impact of COLA
At best, with the COLA increase and Medicare premium reduction, most fixed-income seniors are looking at a net gain of zero. While the COLA increase reduces the erosion of benefits over time, the possibility of continuing to fall ever farther behind financially is a real risk. The Social Security Administration will mail COLA notices throughout December to retirees, survivors, SSI and disability recipients, and representative payees. To receive the information online, you must access or make a mySocialSecurity account by November 15, 2022.
The Social Security COLA benefit increase for 2023 is a welcome relief for seniors on fixed incomes; it is not the only answer to protecting your retirement years. An elder law attorney is as essential to your retirement planning as a financial advisor and can work together to maximize benefits and protect them. Proactive considerations and updates to existing plans when you are near retirement or in retirement can positively affect your ability to age comfortably. If you have questions or would like to discuss your legal matters, please contact us at 989-495-2555.