Social Security is getting an 8.7% boost but advocates warn a recession could spell disaster for 2024 benefits – and retirees will depend on them
Social Security benefits will receive their biggest increase in four decades starting in 2023, following persistent inflation this year.
Social Security Administration just announced next year’s cost of living (COLA) adjustment is 8.7%.
“This may be the first and possibly last time that today’s beneficiaries receive this high COLA,” said Mary Johnson, Medicare and Social Security policy analyst at advocacy group The Senior Citizens League (TSCL), said in a recent press release.
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While many retirees would welcome the much-needed boost to their budgets, a higher COLA combined with the current US economic woes could have some serious financial consequences for both. beneficiaries and future of Social Security.
What does a higher COLA mean for you?
Remember that a large increase in benefits means an increase in your overall income.
Lower-income households may lose eligibility for certain programs, or receive less aid through Medicare Savings or Medicare or Medicaid Supplemental Help programs. Higher-income beneficiaries may pay more for Part B and D premiums if their income is more than $97,000 (or $194.00 for joint filers).
A larger COLA can also push you into a higher tax bracket. Up to 85% of Social Security benefits possible taxable if your earnings are over $25,000 ($32,000 for joint miners).
The Social Security Elderly and Survivors Insurance Trust Fund, which helps pay your retirement benefits, is also expected to run out in 2034, according to the report. trustee’s latest report.
After the fund’s reserves are depleted, you will receive about 77% of the benefit which will instead be withdrawn from tax revenue.
Johnson notes that a higher payment next year could hasten the fund’s insolvency date – an issue that has not been addressed due to the large drop in birth rates over the past few decades. Fewer people mean less tax revenue to fund Social Security.
Johnson added: “The last time inflation was this high was in 1981. “The Social Security Trust Fund was close to defaulting and Congress passed a series of bills cutting Security benefits. social security and tax increases”.
Can’t have ‘COLA payable in 2024’
Johnson warns that a recession next year could have dire consequences for your Social Security benefits.
Much of the funding for benefits comes from payroll taxes, but high unemployment during an economic downturn can “cause a significant deterioration in the finances of the Social Security Trust Fund.” .
The Bank of America forecast The US economy could lose about 175,000 jobs per month in the first quarter of 2023.
“Also, a sudden shift to deflation could mean there may be no COLA payable in 2024,” Johnson said.
2023 COLA is the biggest since 1981
The new COLA will raise the average retiree benefit to more than $140 a month.
The Centers for Medicare & Medicaid Services also announced in September that Medicare premiums will drop by just over $5 a month to $164.90 next year — the first time Part B premiums have fallen in a year. decade.
However, past COLAs have not always kept pace with inflation. Elderly people get one 5.9% COLA in Januarybut Johnson calculates that the average benefit falls by 50%.
“We won’t know the bottom line until we know what inflation will look like in 2023,” she said.
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This article is for information only and should not be construed as advice. It is provided without warranty of any kind.
