One of the challenges of living on a fixed income in retirement is that increases in taxes and consumer prices, no matter how small, can have a significant impact. This is especially true if you rely heavily on Social Security benefits, which rarely provide enough income to make basic living.
The Social Security Administration attempts to account for inflation in its annual cost of living adjustment (COLA), but increases do not necessarily keep up with actual inflation. For example, in 2022 his COLA was 5.9%, but the inflation rate was over 7% for the entire year.
Inflation also affects the amount of taxes paid by both retired and working Americans. Here’s a look at six ways inflation could affect his Social Security benefits and taxes in 2024.
Decline in spending power
This is a continuing struggle for Social Security recipients, and the inability of annual COLAs to effectively combat inflation. According to a study released earlier this year by the Senior Citizens League (TSCL), average benefits from January 2021 to December 2022 were about $1,054 below the rate of inflation. Average benefits have recovered some of that due to higher COLAs of 8.7%, but they have not recovered. Almost everything.
One of the main problems, according to TSCL, a nonpartisan senior advocacy group, is that the formula that determines annual COLAs underestimates health care costs. The index used to determine the annual COLA is the Consumer Price Index for Urban Wage and Office Workers (CPI-W), which estimates that consumers spend approximately 7% of their household budget on health care. It is assumed. However, according to TSCL’s latest senior survey, most respondents said they spend at least 16% of their income on health care.
Reduce monthly payment increases
Based on the latest inflation statistics, the COLA in 2024 will likely be 3.2%, which would raise the average monthly retiree benefit of $1,790 by $57.30. This is a significant decrease from this year’s average monthly increase of $146. The official cost of living adjustments for 2024 are expected to be released on October 12, when September’s inflation figures are released.
high tax rate
The 2023 COLA could push some beneficiaries into a higher tax bracket, potentially leading to higher taxes when they file their 2023 returns next year. You may owe taxes on a portion of your Social Security benefits if your combined income exceeds $25,000 for a single filer or $32,000 for a married couple filing jointly.. Total income, also known as provisional income, is the sum of half of your Social Security benefits, tax-free interest, and other non-Social Security items (such as work and investments) that make up your adjusted gross income.
Up to 50% of Social Security income is taxable for individuals with combined income of more than $25,000 and joint filers of more than $32,000. Up to 85% of Social Security is taxable for an individual whose combined income exceeds her $34,000 and a joint filer’s income exceeds $44,000.
Although Social Security benefits are adjusted annually for inflation, the income tax threshold for recipients has remained unchanged since benefits were first taxed in 1984. This means that every time benefits are increased, more seniors are exposed to income taxes on Social Security.
Medicare premiums will rise
In its annual report released earlier this year, the Medicare Administrative Board projected that monthly Part B premiums would increase from $164.90 in 2023 to $174.80 in 2024. This estimate does not include “significant new costs” that will be incurred after the estimate is released. According to TSCL. One of those costs could be Medicare coverage for another new Alzheimer’s drug, Rekenbi, which is expected to cost $26,000 a year without insurance.
High income test (maybe)
When you start receiving Social Security retirement benefits, the SSA considers you retired. You can still collect Social Security benefits and earn outside income, but there are limits to how much you can earn while receiving full benefits. This limit is reviewed annually and may change as early as 2024.
If you are under retirement age throughout the year, the SSA will deduct $1 from your benefits for every $2 you earn over the annual limit. The 2023 cap is $21,240. In the year you reach full retirement age, SSA deducts a $1 benefit for every $3 you earn over another limit. The earnings limit for 2023 will be $56,520.
Increase in payroll tax threshold
Workers in 2024 may see changes to the income threshold for wages subject to Social Security taxes. In 2023, you will have to pay up to $160,200 in taxes on all wages, up from $147,000 in 2022. This is not unusual. SSA has raised the income threshold every year since 2016, except for three years since 1972.
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