It's hardly news that inflation has been surging since the start of the year, putting a strain on consumers and making it difficult for some to cover even their basic expenses, like housing, transportation, and food. But all of that rampant inflation has had one silver lining for seniors -- Social Security recipients are now getting the largest cost-of-living adjustment (COLA) in decades.
The Social Security Administration recently announced that Social Security recipients will get an 8.7% COLA for 2023. That will take the average retired worker's monthly benefit of $1,681 up to $1,827, for a boost of $146 per month.
Better yet, for the first time in years, the cost of Medicare Part B isn't increasing. Social Security recipients who are also enrolled in Medicare have their Part B premiums deducted from their benefits automatically. In years past, Part B hikes have eaten away at seniors' COLAs. But since the standard Medicare Part B premium is actually going down in 2023, it shouldn't impact Social Security COLAs whatsoever.
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That doesn't mean you'll actually get to keep your extra $146 a month, though. Here are a couple of reasons why.
1. Higher living costs could eat up that money
The whole reason seniors on Social Security are getting such a generous COLA in 2023 is that the rate of inflation is way up on an annual basis. But if the rate of inflation continues to increase, you may find that the extra money in your Social Security checks goes directly to essential bills, leaving you with little to nothing left over for other things, like leisure spending or, more importantly, savings.
2. Taxes could apply to your benefits
Many seniors are shocked to learn that Social Security benefits can be taxable. But whether you'll pay taxes on yours hinges on your provisional income, which is half of your annual Social Security benefit plus your adjusted gross income and income from tax-free investments like municipal bonds.
Unfortunately, the thresholds at which taxes on Social Security benefits apply are fairly low. If you're single, a provisional income of $25,000 or more will mean paying taxes on some of your Social Security income. If you're married, that number rises to $32,000.
Because Social Security benefits will be a lot higher for many seniors in 2023, we may find that more seniors are liable for taxes on some of that income. The result? A monthly boost that's lower than $146.
Don't start counting your extra money just yet
The fact that Social Security benefits are rising substantially in 2023 is a good thing, for the most part. Seniors need that boost to keep up with higher living costs, especially given how poor a job 2022's 5.9% COLA did at keeping up with inflation.
While the average senior on Social Security may be in line for a monthly increase of $146, that doesn't automatically mean they'll gain $146 a month in buying power. And it's important to recognize that before you make plans to start spending that money.
