Social Security recipients are on pace to receive the biggest raise in more than 40 years for 2023, although cooling inflation has brought the projection down slightly from prior estimates.
The projected cost-of-living adjustment, or COLA, for 2023 is 9.6%, according to the Senior Citizens League. That bump would raise the average retiree benefit of $1,656 by $158.98, according to the organization.
The Social Security Administration will announce the actual adjustment for 2023 in October, based on a calculation that compares the average consumer-price index from the third quarter of 2022 with data from the same period last year. Wednesday’s estimate factored in consumer prices from July, which rose at 8.5% over the same time last year. That was down from 9.1% in June, largely due to falling energy prices.
A fat raise would be good news for the roughly 51 million people who collect Social Security retirement benefits. But it will still fall short of many recipients’ needs. The 5.9% COLA for 2022 proved no match for this year’s inflation, so many have had to dip deeper into savings to cover higher prices on essentials like gas and groceries.
Yet the raise could also lead to some unwelcome consequences. For example, it will likely subject more of certain beneficiaries’ benefits to federal income taxes. If you file an individual tax return and your income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits; if your income is more than $34,000, up to 85% of your benefits may be taxable. (Income for these purposes is defined as your adjusted gross income, plus nontaxable interest, plus one half of your Social Security benefits.) For couples filing jointly, if you and your spouse have income between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits; if your income is more than $44,000, up to 85% of your benefits may be taxable.
Higher income may also disqualify some beneficiaries from needs-based assistance programs.
What’s more, the boost might push some higher earners into the bracket where they have to pay income-adjusted Medicare premiums. For 2022, individuals whose 2020 income exceeded $91,000 and couples whose 2020 income exceeded $182,00 have to pay more than the standard Part B premium of $170.10 a month. Higher earners also pay more for Part D drug plans.
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