like economic inflation Calm down, the odds are growing that Social Security benefits won’t rise as dramatically next year as they did in 2023.
Retirees will likely look at a cost-of-living adjustment somewhere in the 3% range — less than half the COLA increase they saw in 2023, according to projections by Seniors AssociationIt is a nonpartisan advocacy group. The group monitors inflation data to make predictions of possible changes in COLA in the future.
last appreciation It is expected to be released on September 13th And it could be higher or lower, depending on new inflation data for August. The exact inflation-adjusted percentage will be known in mid-October.
The cost of living adjustment due in 2022 was also strong at 5.9%.
No one should count yet on how much of an increase they might see in their Social Security benefits in the next year. However, some observers expect an increase in the range from 2.7% to 3.2% remains a strong possibility.
“We’re returning to reality,” said Mary Johnson, a policy analyst with the Senior Citizens League that oversees estimates for Social Security’s inflation adjustments.
“However, 3% is still above average,” she said.
Johnson noted that in the past two decades, the inflation-adjusted average for Social Security benefits was 2.6%. Three years did not include any modification at all or 0% For inflation – 2010, 2011 and 2016.
Adjustments for inflation were modest before the COVID-19 pandemic hit, supply chains collapsed and federal stimulus payments flooded the economy with liquidity. Through 2020, the inflation adjustment for Social Security benefits was 1.6%. This was followed by a 1.3% rise in payments in 2021.
However, when you compare an estimated 3% versus 8.7% last year, Johnson noted, many seniors on tight budgets will “feel overwhelmed.”
How inflation causes social security checks to increase
A specific formula, set forth in the Social Security Act, will be used for Calculate Upcoming inflation adjustment based on the July, August and September monthly changes to the Consumer Price Index for urban wage earners and clerical workers.
The US Bureau of Labor Statistics will release inflation data for August at 8:30 am September 13th. Data for September will be released on October 12.
The latest released data showed a 3.2% increase in the consumer price index in July compared to a year ago.
The Consumer Price Index for urban wage earners and clerical workers, or CPI-W, rose 2.6% in the 12 months through July.
To calculate Social Security adjustments, inflation figures based on the Consumer Price Index for July, August, and September are summed together and averaged.
As inflation continues, this year’s third quarter average will be compared to last year’s third quarter average. The percentage difference between the two is the COLA amount, which will be paid against the check received in January 2024, according to an explanation by the Senior Citizens Association.
If COLA ends up at 3%, as the advocacy group now predicts, the average monthly Social Security retirement benefit would increase by about $55 a month. It was the average monthly benefit for all retired workers $1,827 in January after adjusting for this year’s COLA, according to the Social Security Administration. Add in an extra $55 over 12 months and some might be looking at an extra $660 per year.
In 2023, the COLA Amendment added up to an additional $146 per month based on average interest About $1,681 per month for all retired workers. On an annual basis, this type of COLA adjustment added up to an additional $1,752 over the course of 12 months.
on 71 million people People across the country received Social Security benefits and/or Supplemental Security Income benefits as of June, according to Social Security data.
What is the outlook for inflation?
Some economists do not expect inflation to fall in a straight line in the future. But expectations are that inflation in general is likely to continue fading thereafter 11 raise interest rates By the Federal Reserve since March 2022.
Inflation could pick up a bit and then rebound if we see rapid wage growth which should contribute to higher prices of some goods down the line.
The consumer price index may rise on an annual basis by about 3.6% to 3.7% in August and rise by about 3.5% to 3.6% in September, according to forecasts by Omair Sharif, founder and chairman of the company. Inflation Insights in Pasadena, California. That could be higher than July’s 3.2% year over year.
“It’s likely to taper off in October and November,” Sharif said.
Bank of Comerica’s chief economist predicts that the Federal Reserve will pause and not raise interest rates at its next two-day meeting on Sept. 19 and Sept. 20. But Comerica then expects the Fed to raise the short-term federal funds rate by a quarter of a percentage point after another two-day meeting ends on November 1.
After the November rate hike, Comerica forecasts, the Fed could change gears and start cutting rates during the first six months of 2024.
Comerica expects the consumer price index to likely be around 3.3% year-over-year in September, said Bill Adams, chief economist at Comerica Bank. If that were the case, Adams said, that would match the CPI-W of about 3%.
Why some retirees need to prepare for larger tax bills
Retirees who collect Social Security — and receive a pension or benefit from 401(k) savings — are likely to grumble more when it comes to their 2023 tax returns.
Taxes are complicated when it comes to Social Security benefits but unfortunately, many retirees need to review them.
If you file as an individual, you may have to pay income tax up to 50% It is your Social Security benefit if your so-called combined income ends up counting between $25,000 and $34,000.
Your combined income is your adjusted gross income, plus nontaxable benefits, plus half of your Social Security benefits.
If you file a joint return, you may have to pay income tax on up to 50% of your Social Security benefits if your combined income: between $32,000 and $44,000.
In some cases, a IRS Guidelines Note that up to 85% of your Social Security benefits can be taxed if any of the following situations apply:
• The total of half of your benefits and all of your other income is over $34,000 if you file as an individual or $44,000 if you are married and jointly involved. • You are married, filing separately, and living with your spouse at any time during the calendar year.
Taxpayers can audit IRS Publication 915 For information about Social Security benefits and federal income taxes.
April Walker, Principal Director of Tax Practices and Ethics with American Institute of Certified Public AccountantsHe said that an inflation-driven increase in Social Security benefits paid in 2023 would certainly increase total combined income, all other things being equal, and is used to calculate any taxes on Social Security benefits when people file federal income tax returns in 2024.
“Since the (tax) thresholds are not adjusted for inflation, more seniors may have to pay taxes on a percentage of Social Security,” Walker said.
Up to 50% of Social Security benefits became taxable for the first time in 1984. The second tier, where up to 85% of Social Security benefits could be taxable, became effective in 1993. At that time, the tax was described as It only affects “high-income seniors,” Johnson said.
Unlike income tax brackets, Johnson notes, the income thresholds for taxing Social Security benefits are never adjusted for inflation. As a result, she said, over time, more and more older taxpayers end up paying taxes on Social Security benefits as income grows and pay taxes on a larger portion of Social Security benefits.
Today, even retirees with modest median incomes pay tax on a portion of their benefits, Johnson said, which could grow larger as COLA increases.
However, Johnson noted that changing how Social Security benefits are taxed could lead to a complex debate because revenue from taxes creates an important source of funding for Social Security and Medicare trust funds.
Why not necessarily see an extra $55 a month
Sure enough, someone receiving $1,000 a month in Social Security retirement benefits now—say if they retire before their full retirement age or haven’t worked for many years—would only see a $30 increase based on a 3% increase.
And again, we don’t know the exact COLA account yet, so the hike could be less than 3%.
And a key for many Social Security recipients: Those on Medicare won’t know the final outcome of the COLA boost until new Part B premiums are announced later in 2023. This additional additional cost will take a significant chunk of the money out of any COLA increase.
Medicare trustees projected in March that the standard monthly premium for Part B could rise by $10 per month. $174.80 In 2024 for the standard monthly installment. The final figure could be released in November or earlier.
Johnson anticipates that another $5 could be added to insurance premiums to cover significant new administrative and monitoring costs associated with a new Alzheimer’s drug, lecanemab, which comes at a very expensive price and is known by the brand name Leqembi. The property is expected to cost about $26,000 annually without insurance.
Contact personal finance columnist Suzanne Tombor: email@example.com. Follow her on Twitter @tomorrow.
This article originally appeared on the Detroit Free Press: Social Security COLA benefits increase for 2024: What the projections say