Retirees are looking anxiously to learn what the Social Security increase based on the Cost of Living Adjustment (COLA) might be for 2023.
With inflation raging at multi-decade highs, advocates think the jump may be as high as 8.7%. Roughly 70 million people, senior citizens and the disabled, currently collect Social Security.
The adjustment, still just an estimate, would be the highest since 1982. The final number is due to be released Oct. 13 along with September inflation data. In 2022, the COLA came to 5.9%.
What’s Going On With This Social Security Increase?
Seniors can start collecting Social Security at 62 and are obliged to starting in their 70s. Those who continue to work or have income from a retirement plan start paying taxes when family income exceeds $32,000, or $25,000 for singles. There are strategies you can use to reduce the hit.
For seniors on Medicare, a standard Plan B premium is deducted from each check. This year that’s $170.10. The amount of that premium for 2023 is due to be announced in November.
Social Security taxes of 6.2% are withheld on paychecks until they reach $147,000, a maximum tax of $9,114. The same rate applies to employer payroll taxes. This means 12.4% of wages can go into the program, up to the $147,000 limit. Medicare taxes of 2.9%, also split between employer and employee, are paid in the same way.
While Social Security is considered the “third rail” of American politics, the cost of the program and its impact on the deficit have some Republicans calling for reform. This has made the program an issue in the coming midterm election.
What Happens Now?
If inflation starts to abate in 2023 there could be a small wealth effect from the increase, offset by a crunch that seniors now face from higher food and energy costs.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.