What to know as record 8.7% Social Security COLA goes into effect

Kathryn Ziegler | Digitalvision | Getty ImagesThe average retiree benefit will go up by $146 per month, to $1,827 in 2023 from $1,681 in 2022, according to the Social Security Administration The average disability benefit will increase by $119 per month, to $1,483 in 2023 from $1,364 in 2022. What’s more , standard Medicare Part B premiums will go down by about 3% next year to $164.90, a $5.20 decrease from 2022. Medicare Part B covers outpatient medical care including doctors’ visits. Monthly Part B premium payments are often deducted directly from Social Security checks. Due to the lower 2023 premiums, beneficiaries are poised to see more of the 8.7% increase in their monthly Social Security checks. “The good news about these letters is people are realizing 100% of the 8.7% lift,” said David Freitag, a financial planning consultant and Social Security expert at MassMutual.”Of course, the economy is inflated at a frightful rate, but this represents the value of cost-of-living adjusted benefits from Social Security,” Freitag said.Few other income streams in retirement offer cost-of-living adjustments, he noted. Digitalvision | Getty ImagesIf you’re wondering how much more you stand to see in your checks, the personalized letter from the Social Security Administration will give you a breakdown of what to expect. That includes your new 2023 monthly benefit amount before deductions. It will also tell you your 2023 monthly deduction for premiums for Medicare Part B, as well as Medicare Part D, which covers prescription drugs. The statement will also show your deduction for voluntary tax withholding. The good news about these letters is people are realizing 100% of the 8.7% lift.David Freitagfinancial planning consultant and Social Security expert at MassMutualAfter those deductions, the statement shows how much will be deposited into your bank account in January.Of note, you do not necessarily have to be receiving Social Security checks now to benefit from the record 2023 increase, Blair noted. “The good news is you don’t have to apply for benefits to receive the cost-of-living adjustment,” Blair said. “You just have to be age 62 or older.” This year, that will be determined by your 2021 tax returns, including your adjusted gross income and tax-exempt interest income. Those two amounts are added together to get your modified adjusted gross income, or MAGI.In 2023, those IRMAA premium rates kick in if your adjusted adjusted gross income is $97,000.01 or higher and you file your tax return as single, head of household, qualifying widow, widower, or married file separately; or $194,000.01 or higher if you are married and filed jointly. Notably, just one dollar over could put you in a higher bracket.” It’s important for everyone to make sure that the amount of adjusted gross income that they’re using for the IRMAA surcharges agrees with what they filed on their tax return two years ago,” Freitag said. If the information does not match, you “absolutely need to file an appeal,” he said. Because the IRMAA surcharges can be extremely significant, that is an area to watch for errors, Freitag said. When to appeal your Medicare surchargesIf your income has gone down since your 2021 tax return, you can appeal your IRMAA. moved down a bracket or below the lowest amounts in the table. Qualifying life changing events, according to the Social Security Administration, include marriage; divorce or annulment; death of a spouse; you or your spouse reduced your work hours or stopped working altogether; you or your spouse lost income on property due to a disaster; you or your spouse experienced separation, termination or reorganization of an employer’s pension plan; or you or your spouse received a settlement from an employer or former employer due to bankruptcy, closure or reorganization.To report that change, beneficiaries need to fill out Form SSA-44 with appropriate documentation.How higher benefits could cost youAndrew Bret Wallis | The Image Bank | Getty ImagesAs your Social Security income goes up with the 8.7% COLA, that may also push you into a different IRMAA or tax bracket, Freitag noted. That calls for careful monitoring of your income, he said. Keep in mind that two years in the future you may get exposed to IRMAA issues if you’re not careful. In addition, more of your Social Security benefits may be subject to income taxes. Up to 85% of Social Security income may be taxed based on a unique formula that also factors in other income.It is a good idea to have taxes withheld from Social Security benefits in order to avoid a tax liability when you file your income tax returns , according to Marc Kiner, a CPA and co-founder of Premier Social Security Consulting. “Do it as soon as you can,” Kiner said of filling out the voluntary withholding request form.To better gauge how IRMAA or taxes on benefits may affect you forward, it may help to consult a going tax advisor or CPA who can help identify tax-efficient strategies, Freitag said.

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