Most people have stories of how inflation has affected them, be it at the gas pump or the grocery store -- places where prices are higher and their money doesn't buy what it used to.
Where inflation can be helpful is with cost-of-living adjustments (COLAs) for Social Security retirement benefits.
Estimates for Social Security's COLA for next year have reached near double-digit levels, with the nonpartisan seniors group Senior Citizens League (SCL) issuing a recent projection of a 10.5% increase (tinyurl.com/mr39sjvv), which would be the highest climb year over year since 1981's 11.2% rise (see tinyurl.com/bdnab222). Last year's COLA was 5.9%. (The Social Security Administration is expected to announce its official COLA for 2023 in mid-October.)
But the SCL also pointed out a downside for Social Security recipients. In a report released in May (tinyurl.com/2hp2r2wh), SCL policy analyst Mary Johnson presented new results from an ongoing study that showed purchasing power for Social Security benefits had declined by 40% since the year 2000. In fact, the decline in purchasing power from March 2021 to March 2022 was 10 percentage points, the most ever recorded in the study.
Among the factors contributing to the drop in purchasing power from 2021 to 2022 was a 14.5% increase in Medicare Part B premiums. Medicare Part B covers medically necessary services and preventive services (tinyurl.com/mufmd5sm).
The study tracks expenditures that are typical for people who are age 65 and up, including cost increases in Medicare premiums, as well as out-of-pocket health care costs.
According to the study, COLAs have increased Social Security benefits by a total of 64% since 2000. Unfortunately, typical senior expenses (through March 2022) grew by 130%. That can certainly put a strain on the finances of older people, considering that a Social Security Fact Sheet featuring research released in 2021 (based on data from 2015) found that among elderly Social Security beneficiaries, 37% of men and 42% of women relied on Social Security for 50% or more of their income (tinyurl.com/4fym7eyn).
Another possible problem highlighted by Johnson involves taxes. Johnson noted that a larger Social Security benefit can lead to higher income, and that in turn can lead to higher taxes for those with incomes above $25,000 for individuals and $32,000 for married couples (tinyurl.com/d4e372h6). There could be a large number of retirees who have not previously paid taxes on their benefits who might have to do so in 2023.
While retirees look to assess where they stand in relation to inflation and their finances, those who are saving for retirement might benefit from higher contributions in 2023.
As pointed out in IRS Notice 2021-61 (tinyurl.com/mtb32z3k), "Section 415 of the Internal Revenue Code ... provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost-of-living increases."
We could see an increase in 2023 401(k) contribution limits from $20,500 (2022) to $22,500 (2023), according to a forecast from Milliman, an independent risk management, benefits and technology firm. The forecast was issued in the middle of July (tinyurl.com/2p8vjfhu).
Among the other projections for 2023: The catch-up contributions for those 50 and older will rise to at least $7,500 (up $1,000 from 2022), and the sum of individual and employer contribution limits will climb to at least $67,000 (up $6,000 from 2022).
When will any actual changes be finalized? Last year, for example, the IRS released 2022 limits in November 2021.
While there are some "benefits" to inflation, overall it remains a challenge for individuals -- especially those who have retired.
DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION