Next year, Social Security recipients will see the largest Cost of Living Adjustment ever. The 5.9% expected increase in benefits will come as an adjustment to the increased cost of living after a year of surging prices due to runaway inflation.
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Although the COLA will be 5.9%, it does not mean your monthly check will necessarily be almost 6% higher. Here are the two expenses you need to watch out for that could chomp away at your monthly check.
Higher Medicare Premiums
Medicare premiums depend on a number of factors, like how much income you have each month and what kind of supplements you decided to add. With Medicare costs increasing as the amount of your benefit does, along with the increase of prices all over, this could leave you with a significantly smaller amount of monthly benefit than you were expecting. Medicare premiums are deducted directly from Social Security benefit checks, and they are expected to increase by 6.2%, says the Congressional Research Service. Medicare deductibles are also expected to increase next year, leaving you with even less of your total benefit if you use Medicare health insurance. There’s little way around this, as most seniors use Medicare as their sole health provider. The best seniors can do is not anticipate that the COLA increase will provide a significantly higher portion of money per month.
The extra money might not make a big impact on your day-to-day, but might be just enough to push you over an income threshold and put you in a higher tax bracket. Social Security checks can become taxable once countable income reaches $25,000 for single filers and partly taxable for married joint filers above $32,000. Countable income is considered half of your Social Security benefits, taxable income and some non-taxable income.
Should your benefits now become taxable for the first time, this could also cut into your monthly payment each month, effectively wiping out any extra COLA money.
One way around this is to take nontaxable distributions from other retirement accounts you may have like your Roth IRA or Roth 401k. This will reduce the taxable amount of income you will have, but you still may be required to take minimum distributions from Social Security depending on your age, meaning it’s not entirely avoidable.
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