Barron’s editor Kristen Bellstrom reacts to younger generations preparing for the prospect of fewer Social Security benefits.
Social Security Beneficiaries will soon receive the biggest increase in their benefits in more than four decades, with the pension program expected to increase by 8.7% in 2023.
The increase, known as the cost of living adjustment (COLA), is the largest since 1981, when recipients saw an 11.2% jump. This will increase the average monthly benefit by approximately $140.
More than 66 million Americans collecting Social Security will receive the largest payments starting in January, according to the Social Security Administration.
The higher payouts came in response to the hottest inflation in four decades: Prices paid by U.S. consumers hovered around a four-decade high from August to October, the period over which the COLA is calculated.
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More than 64 million Americans collecting Social Security will receive the largest payments starting in January. (Kevin Dietsch/Getty Images/Getty Images)
“An 8.7% Social Security cost-of-living adjustment is rare — take advantage of it now,” said Mary Johnson, policy analyst at the Senior Citizens League. “This may be the first and possibly the last time beneficiaries will receive such a high COLA today.”
Still, increasing benefits for decades isn’t always good news for recipients, according to Johnson.
Higher Social Security payments are a bit of a catch-22. They can reduce eligibility for low-income safety net programs like food stamps and can cause people to higher tax brackets. Bigger payouts, essentially, don’t necessarily mean more money in people’s pockets.
Social security benefits become taxable When half of the benefit amount, plus all your other income, including tax-exempt interest, exceeds $25,000 if you are single, head of household, or eligible widow or widower or $32,000 if you are married and that you file jointly.
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Some seniors may never have had to pay tax on their benefits, but that will likely change next year when they file their taxes. In fact, the Congressional Budget Office has estimated that the share of Social Security benefits subject to tax could increase by 10% this year and another 10% in 2023. In total, total income taxes paid on that money is expected to climb 37% this year. year.
On top of that, the Social Security Trust Fund is estimated to receive more than $45 billion in tax benefits in 2022 — a significant increase from 2021, when it brought in around $34.5 billion. according to program administrators.
“High inflation COLAs can have very long-term effects,” Johnson said. “It’s like a no-win situation.”
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Higher monthly income may also reduce seniors’ eligibility for low-income programs like SNAP, the Supplemental Nutrition Assistance Program (food stamps).
The benefit in 2022 jumped 5.9%, equivalent to an average monthly increase of $92 for U.S. retirees, bringing the total amount to $1,657, the Social Security Administration said last year.
Shoppers at a grocery store in San Francisco, California, May 2, 2022. (Photographer: David Paul Morris/Bloomberg via Getty Images/Getty Images)
Rampant inflation has already eroded the entire increase, however, with recipients losing 46% of their purchasing power – or about $508 – each month of the year, according to calculations by the Senior Citizens League.
Additionally, the unusually large COLA could advance Social Security’s insolvency date by depleting funds more quickly.
The average monthly benefit would have to increase by $417.60 for retirees to maintain the same level of purchasing power as in 2000.
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