Every year United States seniors may see an increase in their Social Security benefit. The intent of this increase is because the United States Government and the Social Security Administration want to ensure that no retiree loses purchasing power. The best way to do this, then, is to increase the benefit to balance spending and monthly income. This can be done on a monthly basis with workers and their salary, but it is not the same when we are talking about seniors. Social Security does not increase the pensions of retirees every month, but once a year. The announcement of this adjustment is always made in October.
We have therefore already known for almost a month what the Social Security Cost of Living Adjustment (COLA) increase will be for 2023. The exact increase that seniors will see in 2023 will be 8.7% over this year’s benefits. This means that the maximum benefit will also increase.
Thus, a senior collecting a $1,000 subsidy in 2022 will reach $1,087 next year. This is just one example of what Social Security can increase. In this sense, the average benefit of $1,666 will increase to $1799 per month. To find out what your subsidy will be in the coming year you only have to add 8’7 of the total.
However, what seems like very positive news could be something not so good. This is because the threshold for paying taxes does not increase with each time the Cost of living adjustment is applied. Therefore, we have had the same threshold of taxable money for many years, so some retirees who did not pay taxes before will now have to start paying taxes. It all depends on what the Social Security check is.
So why is the Cost of living adjustment bad news?
As we’ve discussed before, the reason Social Security’s Cost of Living Adjustment is bad news is because of the taxes to be paid. Starting in 2023, many retirees who previously paid no taxes will end up paying part of their pension in taxes.
To find out exactly if in your case you have to pay taxes, contact a financial advisor or a specialist lawyer. In these cases it is better to make sure that we will not have to pay anything before making mistakes. Even so, it is good to keep in mind that in most cases these federal taxes are not mandatory. This is because the benefits are usually not high enough to pay them.
Watch out very carefully for all types of income and if you work while collecting Social Security. Make sure that the Cost of living adjustment does not force you to pay taxes after 2023.