October is the most critical month for seniors in terms of Social Security | Smart Change: Personal Finance

(Trevor Jennewine)

Nearly 66 million Americans received Social Security benefits in July, and more than half of retired workers say those monthly checks are a major source of income, according to a Gallup poll. Unfortunately, soaring prices this year have meant those monthly checks don’t cover nearly the amount of expenses they used to cover.

A whirlwind of macroeconomic factors caused inflation to surge to 9.1% (year-on-year) recipients in the first seven months of 2022. In fact, according to The Senior Citizens League, the average benefit has fallen by about $58 a month, or $374 so far.

People also read…

Fortunately, the Social Security Administration (SSA) uses new data every year to recalculate the COLA. That information will be released next month, along with other key figures like the retirement income cap, making October the most critical month of the year for seniors in Social Security.

This is what you can expect.

Image source: Getty Images.

There will be a huge adjustment to the cost of living

COLAs are designed to maintain Social Security purchasing power by increasing the monthly payout at a rate equal to inflation. Well, inflation has hit its 40-year high several times this year, meaning the COLA in 2023 is on track to be the biggest adjustment in the past four decades.

In fact, the Senior Citizens League estimates that COLA will be 9.6% by 2023, although that figure could fall to 9.3% if inflation slows, or it could rise to 10.1% if inflation rates in the coming months. accelerates. In the case of a 9.6% COLA, the average retiree would receive an additional $160 per month next year.

That said, those numbers are just estimates. COLAs are calculated based on changes in the consumer price index for urban wage earners and white-collar workers (CPI-W) from year to year. Specifically, the CPI-W of the third quarter (July through September) of the current year is divided by the CPI-W of the third quarter of the previous year. Any increase becomes the COLA for the following year. This means that the official COLA cannot be calculated until the CPI-W data for August and September are available.

As a warning, seniors should not view COLA as an increase. Food and energy prices have risen dramatically this year and the standard Medicare Part B premium is up 14.5%. Even if inflation drops to zero next year — a highly unlikely scenario — in 2023, COLA will only reimburse seniors for the extra money they had to pay in 2022.

An increase in the pension income limit

Another metric that may be of interest to some seniors is the retirement income limit, also known as the retirement income test exemption amount. While it is possible to work while receiving Social Security, individuals who claim retirement benefits before full retirement age (FRA) may see their monthly payouts reduced if the income they earn in a year exceeds a certain threshold.

The income limit for individuals who fall below their FRA increased by 3.2% to $19,560 in 2022. If income exceeds that threshold, $1 in benefits is withheld for every $2 in income above the limit. For example, a person who falls under their FRA and earns $24,560 (i.e., $5,000 over the limit) will see their benefit decrease by $2,500 over the year. Once they reach FRA, they can receive full Social Security benefits regardless of their income.

Like COLAs, the official earnings cap won’t be published until mid-October. That said, the cap has gone up 2.8% year on year over the past 20 years, so the new income cap figure will likely be somewhere between $20,080 and $20,180.

The $18,984 Social Security Bonus Most Retirees Completely Overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” can give your retirement income a boost. For example, one simple trick could save you as much as $18,984…a year! Once you know how to maximize your Social Security benefits, we think you can retire confidently with the peace of mind we all strive for. Click here to learn how to learn more about these strategies.

The Motley Fool has a disclosure policy.

Add a Comment

Your email address will not be published.