The concept behind Social Security has remained essentially the same since it was conceived back in 1935. However, the specific details regarding funding, payout amounts and other factors are subject to change on an annual basis.
As we head into fall, it’s an important time for Social Security because this is when the annual cost-of-living adjustment will be calculated. Beyond that, it’s also important to be aware of important deadlines and developments that may affect Social Security moving forward. Here are the things every current and future Social Security beneficiary should be aware of in fall 2022.
The 2023 Cost-of-Living Adjustment
Probably the most important and well-known change that occurs with Social Security every year is the annual cost-of-living adjustment, or COLA. The idea behind the COLA is that Social Security beneficiaries shouldn’t suffer a loss in purchasing power due to rising inflation. Thus, every year the SSA determines how much payments should increase for the following year based on increases in the overall rate of inflation. As inflation has shot up significantly in 2022 — topping 9% in June — many retirees are anticipating a large COLA for 2023.
However, the headline CPI inflation number that is often tossed about in the press is not the one that the Social Security Administration uses to determine the COLA. Rather, it uses a variation of the CPI known as the CPI-W. Fall is an important time to pay attention to inflation readings because the COLA is based on the year-over-year change in the CPI-W from July to September.
The Senior Citizens’ League is one of the most frequently quoted sources for an estimate of the following year’s COLA. Earlier in the year, with inflation readings skyrocketing with no sign of slowing down, the League estimated that the 2023 COLA could be anywhere between 9.8% and 11.4%.
As inflation has begun to cool a bit since that high June reading, however, the Seniors Citizens’ League has slightly reduced its forecast, now pegging the 2023 COLA at somewhere between 9.3% and 10.1%. The SSA will formally announce its COLA adjustment in October.
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The Date of Social Security Trust Fund Depletion
Make no mistake about it — without a major Congressional change, the Social Security Trust Fund will run out relatively soon, likely sometime in the 2030s. But this ominous warning is not quite as dire as it may sound at first.
Although the SSA does draw from the Trust Fund to pay some retirement benefits, they are primarily funded by ongoing payroll taxes on current workers. However, there may be benefit cuts in the future if Congress doesn’t make any adjustments. Current estimates project that beneficiaries will only receive 78% of promised benefits as of 2034 unless Congress beefs up funding for Social Security.
However, this is a constantly evolving area. Fall is a great time to pay attention to headlines about Social Security and various Congressional proposals to “fix” it.
Changes to Medicare Premiums
Although Medicare is technically an independent program separate from Social Security, the SSA actually handles enrollment for Medicare. Many seniors also have their Medicare premiums deducted directly from their Social Security payments.
In 2022, Medicare Part B premiums rose by the largest amount in history, with a 14.5% increase. This more than offset the 5.9% COLA for 2022, which was the highest in 40 years. Fears are mounting that a 2023 increase in Medicare premiums could more than offset the potential double-digit COLA increase in 2023 as well.
As of now, experts are predicting that the 2023 Medicare increase won’t be as high as in 2022. However, no one will know until the Medicare premium is announced in October 2022, about the same time as the 2023 COLA will be revealed.
Increases in Social Security Wage Base
Although current workers pay the bulk of Social Security retirement benefits for seniors, they don’t pay taxes on the entire amount they earn. Rather, each year the SSA announces the so-called “wage base,” which is the maximum level of earnings that face Social Security taxes.
This level is raised each year in line with the COLA. For example, in 2022, the wage base was raised to $147,000 from 2021’s $142,800. If the 2023 COLA reaches 10%, the wage base may jump all the way to $161,700, increasing the Social Security taxes paid by higher-earning Americans.
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