Social Security: Estimate for 2023 COLA

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Social Security: Estimate for 2023 COLA Pushes Into Double Digits After Latest Inflation Report
Vance Cariaga
Mon, October 10, 2022, 10:30 AM
DimaBerkut / iStock.com

Social Security beneficiaries could see their 2023 cost-of-living adjustment hit double digits for the first time in more than four decades as inflation in the United States continues to spiral ever higher despite government efforts to rein it in.

Based on Wednesday’s Consumer Price Index report from the U.S. Bureau of Labor Statistics — which showed inflation in June surging 9.1% from the previous year — the COLA for 2023 will be about 10.5%, according to the Senior Citizens League, a non-partisan seniors advocacy group.

If that happens, it will be the first time the COLA has reached double digits since it hit 11.2% in 1982, according to the Social Security Administration. This year’s COLA of 5.9% is the highest since 1981. As recently as last year the COLA was only 1.3%.

If inflation runs “hot” — or higher than the recent average — the 2023 COLA could be 11.4%, said Mary Johnson, the Senior Citizens League’s Social Security and Medicare policy analyst. That would be the second-highest COLA since the SSA began implementing cost-of-living adjustments in 1975. The highest COLA ever was 14.3% in 1981.

If inflation runs “cold,” or lower than the recent average, next year’s COLA could be 9.8%, Johnson said.

A lot depends on how efforts by the Federal Reserve to ease inflation through interest-rate hikes pan out. The Fed has already raised rates three times this year, including a hike of 75 basis points in June — the first such move since 1994. Now there is speculation that the central bank will issue another 75-point hike this month.

The current quarter’s inflation rate will have a lot to say about how big a bump Social Security recipients get in 2023. As previously reported by GOBankingRates, the COLA is calculated by using the average rate of inflation in the third quarter of the year. When those figures come out, the data for July, August and September will be added together and divided by three to get the average. The 2022 number will then be compared with the third quarter average of 2021 to determine the percentage of change for 2023.

“A high COLA will be eagerly anticipated to address an ongoing shortfall in benefits that Social Security beneficiaries are experiencing in 2022 because inflation is higher than their 5.9% COLA,” Johnson told GOBankingRates in an email.

Not everyone is happy about the way the Social Security COLA is determined — partly because it is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, which doesn’t account for increases in the Medicare Part B premium.

“In 2022, Part B increased 14.5%, one of the highest jumps in program history,” Johnson said. “The Part B premium is automatically deducted from Social Security checks, and in 2022 beneficiaries are still smarting from this.”

Meanwhile, a big boost in next year’s COLA could have negative tax consequences unless lawmakers change the income thresholds for Social Security beneficiaries. A 10.5% COLA would increase the average retiree benefit of $1,668 by $175.10, according to the Senior Citizens League.

Higher incomes often lead to cuts in income-related benefits for low-income people as well as higher taxes for those with incomes above $25,000 for individuals and $32,000 for married couples, Johnson said.

“The Senior Citizens League believes tens of thousands of retirees who have not paid taxes on their benefits in the past may discover they must start doing so in 2023,” she said. “Because the income thresholds are not adjusted like ordinary tax brackets, these once-in-a-lifetime COLA increases could lead to permanently higher taxes for many retirees.”

Higher incomes also can lead to a loss of income-adjusted Medicare health and prescription drug benefits for low-income beneficiaries.

“Higher-income individuals can wind up paying higher Medicare Part B and Part D benefits,” Johnson said.

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Live Long and Prosper....

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GOBankingRates
When Will the Social Security COLA Increase for 2023 Be Announced & How Much Could It Be?
Dawn Allcot
Sun, October 9, 2022, 9:00 AM

Each year, usually in October, the Social Security Administration announces the cost-of-living adjustment (COLA) increase for the following year. With the Consumer Price Index (CPI) for September 2022 set to be released on Oct. 13, the COLA should be announced around that same time.

For instance, last year, the SSA released the 2022 COLA on the same day the September CPI was announced. An SSA spokesperson confirmed with the website VerifyThis.com that the 2023 COLA will be announced in October.

According to the SSA website, COLA increases are based on the CPI for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the prior year. COLA increases are rounded to the nearest one-tenth of 1%. The CPI for July was 9.1%, the first of three months that will determine the COLA for 2023.

With this in mind, experts are speculating that the 2023 COLA could be as high as 10%. That would represent the biggest increase since 1981 when the COLA hit 11.2%, AARP.org wrote.

Richard Johnson, director of the retirement policy program at the Washington, DC-based Urban Institute, told AARP, “I think somewhere in the 9% range is probably a reasonable guess.” He added that energy prices could be the wild card in the CPI. Fuel prices at the pump have been declining in the past month, so that could help drive the CPI down.

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Live Long and Prosper....

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GOBankingRates
3 Ways Biden Could Impact Social Security
John Csiszar
Mon, October 10, 2022, 9:02 AM

President Joe Biden has his hands full when it comes to Social Security. As the percentage of retirees relative to current workers grows, thanks in large part to increased longevity, the Social Security Trust Fund is hemorrhaging money. As currently structured, the trustees overseeing the program estimate that the trust fund will be depleted by 2034, at which point benefits will have to be cut to 77% of current levels.

To help preserve current projected benefits amounts, changes will have to be made to the system — and the sooner the better. Here are a few of the proposals that the Biden Administration has floated to help correct the problem, along with additional changes it may be eyeing.

Benefit Increase

One of the primary changes the Biden Administration wants to make to Social Security will actually increase its liabilities. Specifically, Biden wants to increase benefit amounts to a minimum of 125% of the federal poverty level for those who have worked at least 30 years. This minimum benefit would apply regardless of a worker’s earning history. Those who have just a 20-year work record would see benefits bumped up by 5%, while widows and widowers would receive about 20% extra.

Social Security Taxes on Those Earning $400,000 and Up

Social Security is funded in large part by payroll taxes of 12.4% on current workers. Half of this is paid by employers, so workers typically pay just 6.2% — unless they’re self-employed, in which case they are responsible for both the employer’s and the employee’s share.

However, this Social Security tax applies only up to a certain level, known as the wage base. This amount changes annually based on the rate of inflation. For 2022, for example, the wage base is $147,000, up from $142,800. In other words, if you earn more than $147,000 in 2022, those excess earnings are exempt from Social Security taxes.

One of the key Biden proposals regarding Social Security is to apply Social Security taxes to those making $400,000 or more. Under this scenario, workers would pay Social Security taxes up to the current wage base — $147,000 in 2022 — and then be exempt from additional taxes on earned income between $147,000 and $400,000. Once they reached that $400,000 level, taxes would apply to any additional earnings. This would create a so-called “donut hole” in which no additional Social Security taxes would be due on earnings between $147,000 and $400,000.

Rising Wage Base

Currently, the Social Security wage base is adjusted annually based on changes in the inflation rate. One proposal that has been floating around Congress in many different forms over the years is the idea to significantly increase the wage base, perhaps to the $400,000 level, or to simply eliminate it altogether.

According to the Center on Budget and Policy Priorities, adjusting the taxable earnings cap would close somewhere between 25% and 90% of Social Security’s solvency gap.

Of course, no Congressional change comes without consequences — sometimes of the unforeseen variety. For example, under the scenario of increasing payroll taxes, some employers may shift worker compensation from the taxable variety to the nontaxable variety, perhaps in the form of enhanced — and tax-deductible — retirement benefits. This would do nothing to help shore up Social Security.

Increasing payroll taxes on higher-income workers also would further decrease the benefits those workers ultimately receive from the program as a percentage of their income. In other words, higher-income workers would be paying more taxes on a proportional basis, but much of that benefit would funnel down to lower-income workers.

What Changes Are Likely?

Republicans and Democrats have been feuding for years about how to “fix” Social Security, and they approach the problem from very different standpoints. However, both sides agree that something must be done to shore up Social Security.

As with any political process, compromise is a necessity, so it’s unlikely that Biden will get all that he seeks in terms of Social Security modifications. But some combination of reduced benefits and/or higher taxes likely will be required to reach a resolution.

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GOBankingRates
Social Security: Can You Receive Payments If You Never Paid In? How Spousal Benefits Work
David Nadelle
Mon, October 10, 2022, 9:02 AM

Social Security is designed to support workers and their families by providing a guaranteed source of retirement income for those who meet certain criteria. Social Security Administration (SSA) benefits are a critical piece of most Americans’ retirement plans. Here’s what you should know about those benefits.

Social Security is an earned benefit and has strict qualifying rules. To receive Social Security payments in retirement, a recipient must have worked and paid into the SSA system for at least 10 years. Depending on your age, if you have paid at least some Social Security taxes, and if you qualify for a disability benefit, you can potentially receive SSDI (Social Security Disability Insurance) or SSI (Supplemental Security Income) benefits — but this is an exception to the broader Social Security benefit rules.

The only people who can legally collect benefits without having paid into Social Security are family members of workers who have done so. Benefits are based on the qualifying worker’s earnings record and the most common form of such arrangements come as spousal benefits. Other Social Security benefits may be afforded to survivors (typically widows or widowers) or children.

To qualify for your spouse’s benefits, you must be at least 62 years of age — or any age and caring for a child entitled to receive benefits on your spouse’s record (and who is younger than age 16 or disabled).

As a spouse, you can collect a benefit in the amount of up to 50% of your spouse’s Social Security benefit. The allowed Social Security retirement benefit for a spouse starts at 32.5% at age 62 and gradually increases to 50% of the amount that their spouse is eligible to receive at normal or full retirement age, which is 66 or 67 depending on their birth year. You will also receive the full amount if you are caring for a child entitled to receive benefits on your spouse’s record who is younger than age 16 or disabled.

However, remember that a spouse cannot claim spousal benefits until the person who has paid into Social Security (and is deemed eligible) begins receiving payments. So, if you are already 62 but your spouse has not begun to collect SSA payments — you will have to wait until they begin doing so.

It is also important to note that federal, state or local government pensions may affect Social Security payments for spouses and result in a reduced benefit if you have not paid Social Security taxes, personally, for the required time period.

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Live Long and Prosper....

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GOBankingRates
What Is the Average Social Security Benefit at Age 62?
Josephine Nesbit
Mon, October 10, 2022, 10:30 AM

Your retirement benefit amount depends on how much you’ve earned over your lifetime at jobs for which you paid Social Security taxes — and the age at which you claim. You can claim Social Security benefits as early as age 62, but you’ll only receive your full benefit amount if you wait to claim until your full retirement age (FRA).

According to the Social Security Administration (SSA), if you were born between 1943 and 1954, your full retirement age is 66. By claiming at the age of 62, a hypothetical $1000 retirement benefit would be reduced by 25% and you would only receive $750 per month. A $500 monthly spousal benefit would be reduced to $350.

The greater the gap between age 62 and FRA, the higher the percentage of reduction in retirement benefits. For those born in 1960 or later, retirement benefits are reduced by 30% and spousal benefits are reduced by 35%. This means a $1000 retirement benefit would be reduced to $700 per month.

According to the SSA’s 2021 Annual Statistical Supplement, the monthly benefit amount for retired workers claiming benefits at age 62 earning the average wage was $1,480 per month for the worker alone. The benefit amount for workers with spouses claiming benefits was $2,170 at age 62.

Although claiming before FRA allows you to collect retirement benefits for a longer period of time, your benefit amount will be significantly reduced. The SSA says that if you delay your benefits until after FRA, you will be eligible for delayed retirement credits that would increase your monthly benefit.

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Live Long and Prosper....

[xray]

GOBankingRates
7 Things Not To Do When You Retire
Heather Taylor
Sun, October 9, 2022, 3:01 PM

Some of the first things retirees need to do when they retire include applying for Social Security benefits, checking in on their investment accounts and updating estate plans. On the flip side of the coin, what should new retirees avoid doing? Some of the answers might surprise you. Avoid making the following mistakes that can hurt your retirement savings and lifestyle.

Don't Be Too Rigid With Retirement Spending Plans There's nothing wrong with carefully reviewing your spending habits in retirement. However, it's a good idea to avoid being too rigid in your plans. The reason retirees need to be flexible with their retirement spending plans is due to sequence-of-returns risk.

Jesse Cramer, relationship manager at Cobblestone Capital Advisors, said investments often have bumpy returns. Most often, we tend to see multiple years in a row of good returns (bull markets) or bad returns (bear markets). Beginning your retirement with a few years of bad returns causes a disproportionate amount of portfolio stress.

"The main weapon retirees have to combat an unlucky sequence of returns is to remain flexible in their retirement spending plans," Cramer said. "The sequence-of-returns risk is made worse when a retiree withdraws money from their portfolio. The more money they withdraw, the bigger the risk becomes." Cramer recommends retirees consider delaying some of their spending -- e.g., postponing a big trip. This will give the market, and their portfolio, time to recover and lessen the sequence-of-returns risk.

You do not need to collect Social Security benefits at the same time you retire. While you can receive benefits as early as age 62, think carefully about whether you should start collecting then or delay. You may delay Social Security as late as age 70 to receive the full payout. Choosing the optimal strategy to fit your financial situation and overall lifestyle, whether this means taking payments at age 67 or waiting until age 70, can result in thousands of dollars more of potential income over your retirement years.

Don't Spend Your Investment Capital (If You Can Avoid It)

Bob Sewell, CFA and CEO of Bellwether Investment Management, recommends his clients avoid withdrawing more than 4% of their portfolio value out of their accounts from year to year. Withdrawing more than 4% means you're spending some of your investment capital -- and retirees need this capital for the many years of retirement ahead of them. If you are spending more than 4%, Sewell recommends creating a spending plan to look at what amount of capital can be depleted from year to year without running out of money too soon. Part of this plan should look at optimizing where you draw your funds from among your various investment accounts.

Ideally, by the time you reach retirement, you should have paid off all of your debts, including student loans, mortgages and credit card balances. If you have paid off your outstanding debt, do not take on any additional debt. "You don't need that burden in retirement when your income is potentially lower, and you don't have the same abilities to supplement it through employment sources," Sewell said. "Carrying credit card debt from month to month, lines of credit or a new mortgage rarely makes sense, so do your best to avoid it."

Don't Count on an Inheritance

Sewell often sees clients who anticipate a windfall from an inheritance to help support them in their retirement. Counting on an inheritance, regardless of the amount, is not a retirement plan. "The inheritance you are anticipating may end up being much smaller than you expect, may not be received for many years or may not appear at all," Sewell said. The better approach is to look at any inheritance as a bonus to your retirement plan.

Healthcare is one of the most significant expenses in retirement. It's not uncommon for retirees to underestimate the amount of money necessary for health and medical insurance purposes.

Once you are eligible for Medicare, make sure you thoroughly understand what is and isn't covered by your Medicare plan. This will allow you to better budget for medical expenses and be ready to cover costs not insured by Medicare.

Don't DIY All of Your Retirement Planning

You don't need to do all of your retirement planning on your own. It also can be tricky to manage retirement planning alone in the event of unexpected circumstances, such as death or incapacity of a partner that leaves the surviving partner with challenging financial burdens.

Sewell recommends finding a trusted fiduciary advisor or financial professional who can help ensure your investments are well managed and you and your family are in good hands as you retire.

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Live Long and Prosper....

[xray]

GOBankingRates
Will Social Security Offices Be Open on Columbus Day?
Vance Cariaga
Mon, October 10, 2022, 7:40 AM

With Columbus Day coming up on Monday, Oct. 10, many Americans will need to take care of banking or government business ahead of time to avoid the unpleasant surprise of finding out that offices are closed on Monday. The list includes Social Security Administration offices, which will not be open for business on Columbus Day. The Social Security Administration observes 11 federal holidays each year, including Columbus Day, and closes its offices on each of them.

Here are the remaining federal holidays for 2022, according to the SSA website:

Columbus Day: Monday, Oct. 10

Veterans Day: Friday, Nov. 11

Thanksgiving Day: Thursday, Nov. 24

Christmas Day: Monday, Dec. 26

Normally, Social Security offices are open weekdays from 9 a.m. to 4 p.m. In-person appointments typically involve benefit issues that cannot be resolved by phone, mail or online. Visits might also be necessary for those who need to correct or update personal information attached to their Social Security numbers, such as their name or citizenship status.

For the most part, however, the my Social Security online portal allows you to handle your transactions online from the convenience of home. You can do everything from applying for retirement, disability, and Medicare benefits online, to requesting a replacement Social Security card (in most areas) and more.

Social Security Schedule: When October 2022 Benefits Will Be Sent If you need additional information, you can try the agency’s extensive list of frequently asked questions. If all else fails, you can call the SSA’s national toll-free number at 800-772-1213 between the hours of 8 a.m. and 5:30 p.m. when the offices reopen.

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Live Long and Prosper....

[ECE Prof]

"the 2023 COLA could be 11.4%.

My first ever mortgage was 11.5% back in 1982. TIAA interest rate was also something close to that. Imagine that amazing back to the future. Even that may not be enough to fill your gas tank. I used to pay $1.79/gl back in 1979 in Wilkes-Barre, PA. Cash was king then, and it is now.

[habsui]

Oct 10, 2022 17:20:08 GMT ECE Prof said:

"the 2023 COLA could be 11.4%.

My first ever mortgage was 11.5% back in 1982. TIAA interest rate was also something close to that. Imagine that amazing back to the future. Even that may not be enough to fill your gas tank. I used to pay $1.79/gl back in 1979 in Wilkes-Barre, PA. Cash was king then, and it is now.

OK, according to the Inflation Calculator:  $1.79 in 1979 would be $7.30 inflation adjusted in 2022.

Cheap..

[ECE Prof]

Oct 10, 2022 22:50:19 GMT habsui said:

Oct 10, 2022 17:20:08 GMT ECE Prof said:

"the 2023 COLA could be 11.4%.

My first ever mortgage was 11.5% back in 1982. TIAA interest rate was also something close to that. Imagine that amazing back to the future. Even that may not be enough to fill your gas tank. I used to pay $1.79/gl back in 1979 in Wilkes-Barre, PA. Cash was king then, and it is now.

OK, according to the Inflation Calculator:  $1.79 in 1979 would be $7.30 inflation adjusted in 2022.

Cheap..

Yes, you are right. In fact, look at the market prices in Europe, Asia, and elsewhere, the price will be around the number you have quoted. They use liters - 3.78 liters/gl. US is not able to supply the energy needed by the Europe, and their manufacturing has plummeted now.

[Chahta]

LOL, the gumment can use their increased tax revenues due to inflation to pay the SS COLA.


"Some of the first things retirees need to do when they retire include applying for Social Security benefits, checking in on their investment accounts and updating estate plans."
Seems to me that these things should be considered before retiring.

[Mustang]

Oct 11, 2022 0:40:51 GMT Chahta said:

LOL, the gumment can use their increased tax revenues due to inflation to pay the SS COLA.

That will happen but indirectly.  Higher wages needed to offset inflation will result in both the employer and the employee in paying more SS taxes.  But, since wages are not keeping up with inflation, higher SS payments to retirees will result in the trust fund running out of money sooner.

[xray]

Yahoo Money
Social Security benefits will increase 8.7% next year
Kerry Hannon
Kerry Hannon·Senior Columnist
Thu, October 13, 2022, 8:42 AM

The biggest increase in Social Security benefits in four decades will deliver much-needed breathing room for millions of Social Security recipients.

The Social Security Administration, the federal government agency that oversees the benefits, announced a 8.7% increase in the Social Security cost-of-living adjustment (COLA) for 2023.

The increase is the largest since 1981, when the COLA was 11.2%, and raises the average retiree benefit by more than $140 per month starting in January, according to the Social Security Administration.

The adjustment — coupled with a decrease in Medicare Part B premiums next year — will make a critical difference in making ends meet for the more than 70 million retired senior citizens and disabled workers who have grappled this year with mounting prices for everything from electric and natural gas bills to groceries and monthly rent.

“Today's COLA announcement is excellent — and important — news for retirees,” Nancy Altman, president of Social Security Works, told Yahoo Money. “The annual COLA is a key feature of Social Security, one that private-sector pension plans lack. It keeps benefits from eroding over time … [but] it is essential to recognize that the COLA is not a benefit increase. It simply allows beneficiaries to tread water in the face of rising prices.”

Folks who receive Social Security benefits are typically notified by mail in early December about their new benefit amount. Most beneficiaries can also view their COLA notice online through their personal my Social Security account at www.socialsecurity.gov/myaccount.

The jaw-dropping bump-up was stoked by the soaring cost of groceries, gas and other goods and services since July. The Consumer Price Index for Urban Wage Earners and Clerical Workers‌ (CPI-W) was 8.5% year over year in September, down from 8.7% in August.

The COLA is calculated by averaging together the CPI-W consumer price index for the third quarter of the year – July, August, and September of 2022 – and then comparing that figure with the same data last year.

The once a year inflation adjustment began in 1975 under a formula made into law by Congress. And it goes a long way in helping beneficiaries stay abreast of increasing day-to-day living costs.

“We hear a lot about how retirees live on a fixed income,” Anqi Chen, a senior research economist and the assistant director of savings research at the Center for Retirement Research at Boston College, told Yahoo Money.

“Social Security is definitely not fixed income because it is indexed to inflation," Chen added. "The COLA prevents retirement income from being eroded away by inflation. That is a wonderful feature of Social Security because many retirees rely on Social Security for a large chunk of their retirement income. For the typical retiree, it covers about half of their retirement income. To have half of your income indexed to inflation is a big help, especially when prices are increasing.”

This year, 27% of retirees reported they’re spending much higher or a little higher than they can afford, versus 17% in 2020, according to the findings in the Employee Benefit Research Institute (EBRI)’s 2022 Spending in Retirement Survey. Seven in 10 say Social Security is a major source of their income.

"The combination of a COLA this high, and the fact that Medicare Part B premiums went down is a once-in-a-lifetime event,” Mary Johnson, a Social Security policy analyst for The Senior Citizens League, told Yahoo Money. “This is probably as good as it will get.” In the meantime, it's too early to say how well the 8.7% COLA will keep pace with inflation in 2023. The 5.9% COLA received this year has fallen short by 50%, according to Johnson.

“Now let's watch to see if inflation comes down gracefully, instead of popping and deflating,” Johnson said. “That soft landing might mean that inflation slows in 2023 and people wind up with a small COLA of about 2% in 2024. The pop and deflate would mean no COLA in 2024 due to deflation and that brings a whole set of different issues. Pop and deflate occurred in 2010 and 2011 after the Great Recession.”

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Live Long and Prosper....

[retiredat48]

For those who pooh pooh Soc Security, my 16 years of experience is as follows:

I now get a check of about $2500 (incl spouse)each month. While I don't rely on this to live, it seems like manna from heaven every 30 days. Bang...bang..bang...$2500 into the checking account...30 days comes by quickly. The inverse of paying rent.

That COLA increase for next year will add even more "bang."

R48

[Capital]

I can't post the link; but, AARP is reporting an 8.7% increase has been announced for 2023.

[johntaylor]

They should use CPI-E rather than CPI-W

[Deleted]

Oct 14, 2022 22:11:47 GMT johntaylor said:

They should use CPI-E rather than CPI-W

The CPI-E would have made the benefit increase for 2022 1.1% lower. You must be younger than 62 yrs old to suggest that.

[johntaylor]

Didn't mean any particular year.

E would provide more realistic COLAs on an ongoing basis, and legislation has been proposed (but cost more).