Social Security benefits will be providing their biggest boost in four decades starting in 2023, following a year of sustained inflation. The Social Security Administration announced in October that this year’s cost-of-living adjustment (COLA) is 8.7%.
Mary Johnson, Social Security, and Medicare policy analyst at the advocacy group The Senior Citizens League (TSCL) said in a press release, “This may be the first and possibly the last that beneficiaries receive a COLA this high.”
The higher COLA combined with the U.S.’s current economic woes may have some dire financial consequences for their beneficiaries and the future of Social Security, while many retirees will welcome the needed boost to their budgets.
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What does a higher COLA mean for taxes on benefits?
Keep in mind that this significant benefit boost means there is also an increase in your overall income.
The larger COLA could give you a higher tax bracket as well. Up to 85% of Social Security benefits can be taxable if your income is over $25,000 ($32,000 for joint filers).
According to the latest trustees report, the Social Security Old-Age and Survivors Insurance Trust Fund, which helps pay your retirement benefits, is also expected to run out by 2034.
2023 COLA is the biggest since 1981
The new COLA would raise the average retiree benefit by over $140 monthly.
The Centers for Medicare & Medicaid Services also declared in September that Medicare premiums will drop just over $5 a month to $164.90 next year — the first time Part B premiums have reduced in a decade.
However, past COLAs haven’t always stood by inflation. Seniors received a 5.9% COLA in January, but Johnson estimates that the benefit fell short by 50% on average.
Johnson says they don’t know the bottom line not until they learn what inflation will be in 2023.
