Social Security: The Good , The Bad, The Ugly
So long as you are a taxpayer in the US, you have recently been impacted by the recent 8.7% increased cost-of-living adjustment (COLA) that was announced on October 13th. Below I will outline how these changes have impacted different individuals of all ages.
The Good
According to the Social Security Administration (SSA), 70 million recipients will see the increase in benefits. If you were born before 1961, you are eligible to receive this nice bump in your benefits starting in December of this year. The average recipient will see an increase of about $146 per month to their benefit.
The Bad
Anyone not over the age of 62 this year won’t get to take advantage of the COLA. COLA only kicks in when the recipient is eligible to receive their benefits which starts when you turn 62. Otherwise, the only way to increase your benefits is to earn wages higher than the previous qualifying years in your average indexed monthly earnings (AIME) and future COLA when eligible.
If you were born in 1961, you missed out on this adjustment as well as the 2022 adjustment of 5.9%. These were two above average adjustments that could help greatly for the worker, their spouses (including ex-spouses in some cases), their dependents, and survivors. The workers benefit determines how much benefit can be received for spousal, survivor, and dependents. This is because of the way the benefits are calculated.
If you are still paying social security taxes, any earnings up to $160,200 are subject to the tax. In 2022, it was $147,000. This means more taxes coming out of your pocket that you may not see (see Ugly below).
The Ugly
The SSA estimated that they Old-Age and Survivors Insurance Trust Fund, which is where your retirement benefits come from, is only going to be able to pay the benefits until 2034. The fund will be depleted by that point and any continuing income tax will only be able to pay 77% of scheduled benefits. This means there is potential for more tax coming for anyone still working and decreased benefits for current and future recipients. This is due to the large size of the boomer generation and the smaller size of available taxpayers after the boomer generation retires. This doesn’t bode well for most younger Americans, which means the time is now to start saving for retirement, so the missed benefits won’t hurt as badly.
Here is a link to the summary of the Trustee Report so you can see updates from the SSA.
No matter what age you are or what stage of life you are living, you should always plan around income adjustments whether they are an increase or decrease. Increases in benefits could help you save in other areas and create flexibility in a plan. Decreases mean working on your budget and find other places to trim to help with the deficit. Reach out to Ryan as soon as you can to develop a plan so there is no worries about the bad and the ugly.
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