Living in the United States means struggling with annual inflation, especially for Social Security retirees. This increase in prices is very constant and there are many pensioners who cannot carry this amount of money forward. For that reason, the COLA is a great benefit, as it can help most Americans have a little more money each month.
In the working man’s time, retirement pensioners did not have this kind of problem. Workers’ pay can go up a little bit every month. But retirement or disability pensions can’t increase, and that’s why the COLA exists. Yes they can increase, but only once a year and most of the time it is not enough. And this situation is the same for both age pensioners and people with disabilities. The increase is annual and for all equally, since it is a percentage. But the increase is only made once a year.
This is because the COLA increases based on the increase in the CPI-W in the current year. Next year the CPI-W will have risen more, so the Social Security increase may fall short. However, an excessively large COLA increase by 2023 could be very bad for disabled beneficiaries. Do you know why?
A large COLA could be bad for Social Security beneficiaries
In the first instance, an increase in Social Security through the COLA is great news because it means that pensioners and people with disabilities would have more money. This is easy to understand and is not a problem. In other words, everything seems to indicate that we can celebrate the increase in Social Security, but there is a downside.
It is true that this negative part is only for a small number of Social Security beneficiaries. Even so, it is an important part that we must take into account. The biggest problem related to this is that we are facing such a large increase that it could exceed the limit of money before payment of taxes.
For that reason, the COLA increase could cause many pensioners to pay more taxes and therefore end up with less money. This is paradoxical, but it is true. We should not neglect taxes, as not paying them means a financial penalty. If you are not sure that you are paying the mandatory taxes, contact a financial advisor. It is not an issue to forget, as it can mean a large sum of money. For that reason, too large a COLA increase by 2023 may be bad.