As the calendar flips over to Fall, our checklist-driven process at Keen Wealth brings my team to some important action items to help folks prep for the year ahead. In particular, we want to make sure retirees are getting ready to review their Medicare coverage during the upcoming Open Enrollment period in November. And we're also waiting for the Social Security Administration to announce its benefit changes for 2023.
On today's show, we dig into some of the annual adjustments that could affect your retirement benefits next year and how we tie these projections into a comprehensive planning process.
1. Inflating your COLA.
Every October, the Social Security Administration issues a cost-of-living adjustment (COLA) to the next year's monthly benefit payments to keep pace with rising costs, as measured by the Consumer Price Index.
In 2022, the COLA was 5.9%. Given that inflation levels are hovering around 9% for the year, I wouldn't be surprised if the SSA announced a COLA as high as 10% for 2023. Higher costs could offset some of that gain for seniors, but if inflation continues to stabilize and -- hopefully -- decline, an extra couple hundred dollars coming in every month is nothing to sneeze at.
2. Earn more without losing your benefits?
The SSA sets a limit every year on what seniors who are still working can earn while still collecting their Social Security benefits. In 2022, that earnings limit was $19,560. Every $2 you earn over that limit, you lose $1 of your Social Security benefits on your tax return.
In certain cases the SSA does give seniors some leeway on avoiding this penalty and with consumer prices high and the government still encouraging folks to take more personal responsibility for their retirement security, it's likely the earnings threshold will go up next year.
3. Raising the wage base.
Back in June, the SSA's annual report estimated that the 2023 wage base -- meaning the amount of earned income subject to FICA tax -- would be $155,100, up from $147,000 in 2022. Presumably, the government was anticipating that inflation would drive up next year's COLA and taking a step to start paying for those bigger benefit checks.
As we discussed on our episode about that SSA report, this is also an example of the kinds of moves that the government can make to keep the Social Security Trust Fund solvent. All those scary headlines you read about Social Security "going broke by 2035" or "getting wiped out by higher interest rates" might be correct mathematically. But they're also working under a false assumption: that Congress and the SSA will do nothing to shore up the fund. I think it's safe to say that many politicians on both sides of the aisle would be out of a job if that happened.
4. Waiting on Medicare.
In 2022, Medicare Part B premiums rose 14.5% to $170.10 per month. The income related monthly adjustment (IRMA) surcharges for Parts B and D currently start at $91,000 for single filers and $182,000 for married filers, based on your last two tax returns. We'll let you know as soon as we see some estimates for 2023, but it's likely premiums will rise again as more seniors return to their pre-pandemic health care routines, and as the medical industry continues to struggle with high costs and worker turnover.
5. Your million-dollar government nest egg.
We talk a lot on our podcasts and blogs about how dangerous it can be to rely solely on government benefits to secure a modern retirement. Seniors are living longer and doing more in retirement than they ever have. Social Security alone probably won't provide for you and your spouse as you start to slow down and, perhaps, require more expensive housing and medical care in the later stages of retirement.
On the other hand, let's circle back to the 2023 COLA projections. If we do see an increase in the 10% range, that means a typical senior who's contributed to Social Security from ages 22 to 62 could be receiving benefits greater than $3,000 per month. If you had a million-dollar portfolio and, per the old rule of thumb, withdrew 4% per year, that would break down to ... a little over $3,000 per month! In other words, your Social Security benefits could be similar to the monthly income generated on a $1 million portfolio.
That's why getting the most you can out of the benefits you've earned and coordinating them with the rest of your financial plan is so important. Get in touch with my team at Keen Wealth and let's discuss your Social Security and Medicare questions and start planning for a prosperous 2023.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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