Social Security Update
We heard some good news for a change late last week. Next year’s cost of living adjustment for Social Security beneficiaries will be 8.7%, the largest annual increase since 1981. Beneficiaries will start seeing this in January and the link below takes you to SSA’s blog for more information on how to see yours if you’d like to know sooner.
This COLA comes at a great time for the roughly 70 million Americans receiving Social Security. The SSA says the average benefit will go up by about $140 per month, so that will help take the edge off inflation running at an 8.2% annual clip as of September. Additionally, this is the first year in a while that Medicare premiums aren’t increasing – they’re actually going down little, making the COLA that much more valuable for retirees, especially lower-income folks.
And a quick reminder: If you’re eligible but haven’t filed for your benefits yet don’t worry. The COLA will be applied to your benefit base so you can keep growing it.
Here’s a link to the SSA’s blog post I mentioned.
https://blog.ssa.gov/social-security-benefits-increase-in-2023/
Extra income notwithstanding, some commentators are talking about how this benefit increase only exacerbates the problems faced by Social Security and will accelerate its demise. These concerns aren’t new. For decades a variety of folks have been banging their drums about the health of this third rail of American politics while, perhaps amazingly, benefits were continually paid.
But pessimism and fearmongering are good for business. Books, talking heads on TV, websites, and a laundry list of investment product manufacturers all operate within an ecosystem of their own creation to sell you stuff you probably don’t need. “Don’t trust a government program, trust your life savings to your friendly neighborhood insurance company instead…”. But I digress…
Here's an interesting take on this from a columnist at Morningstar, the fund ratings and analytics juggernaut residing (at least mostly) outside of the ecosystem mentioned above.
The bottom line on the Social Security question is to acknowledge that the program is only meant to cover roughly 40% of your pre-retirement income. Ideally your own savings and/or other income are your base and Social Security would be the extra layer it was meant to be. If you’ve planned well and keep your expenses down, maybe you can stretch your benefits further. But it’s not something to rely on completely.
Beyond that, everyone knows the recommendations to “fix” the program, but nobody in a position of authority seems interested in doing it (that “third rail” issue). It’s all too easy to get worked up about the program’s potential implosion but if the future is anything like the past, it will probably work out okay. After all, for all its problems, the federal government is one of the few entities with a true blank check. That’s not a perfect solution since the inflation we’re seeing now is one of the results of using it, but the blank check’s existence tends to help keep the wheels in motion.
And, of course, the government can always raise taxes. Benefits go up next year but so does the maximum wage income that gets taxed for Social Security, from $147,000 this year to $160,200 next year. That’s a relatively large increase impacting higher earners, so at least something is going back into the digital coffers to replace what’s being spent.
Have questions? Ask me. I can help.
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