Editorial

Christmas for Social Security recipients? Maybe not

Posted 10/20/22

A huge uptick in Social Security monthly checks starting in January, 2023 — the largest Cost-of-Living Adjustment increase since 1981 —  is not necessarily a good thing.

Make no …

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Editorial

Christmas for Social Security recipients? Maybe not

Posted

A huge uptick in Social Security monthly checks starting in January, 2023 — the largest Cost-of-Living Adjustment increase since 1981 —  is not necessarily a good thing.

Make no mistake. The 8.7% bump in monthly payments in January will be welcomed by Social Security retirees who will see on average an increase of about $140 per month in benefits. That is not just for one year. That becomes a retiree’s new base. 

But it’s the underlying cause for the increase in benefit payments that remains unsettling: runaway inflation. Higher costs at the gas pump and in the grocery store are the headline numbers. But across the board, the core inflationary picture in black and white is ugly.

The formula for establishing the COLA is set by Congress. It amounts to undeniable recognition of higher cost of living, as measured by comparing  a three-month average (July to September) from last year to this year of the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as CPI-W. 

Social Security benefit payments do not amount to free money. Up to 85% of benefits can be taxable on federal tax returns, depending on annual W-2 income.

For higher wage earners, the taxable maximum also increases in 2023. The previous maximum annual Social Security tax on W-2 wage earners was $147,000 annually. When a worker reached the limit of $147,000 in compensation for the year, there was no more Social Security wages to pay. That applied to both employee and employer. 

In 2023, the maximum Social Security tax obligation is increased by $13,200 to a new total of $160,200. At 6.2%, high earning workers who reach the new maximum taxable limit will pay an additional $818.40 a year. Again, that is both employee and employer.

The higher taxable base will mean more income to the Social Security Trust Fund, which can use it. Current estimates by Social Security trustees suggest the trust fund reserves may be depleted by 2035 without further congressional action.

That brings the focus back to inflation. A severe economic recession that reduces jobs and employee earnings will mean less income to Social Security reserves. Celebrate the higher Social Security checks starting in January. But Job No. 1 is still to stem inflation.

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