Social Security and Supplemental Security Income (SSI) beneficiaries in the United States will receive an 8.7% increase in their payments this month, marking the largest benefits increase in 40 years. The cost-of-living adjustment (COLA) is intended to help low-income Americans struggling with inflation pay for groceries and other essentials. The first adjusted payment was sent out on December 30, but payments will continue to be distributed throughout the month. The COLA will benefit approximately 70 million Americans, including 42% of elderly women and 37% of elderly men, as well as many younger Americans with disabilities.
However, the COLA also means that many recipients will be taxed more heavily than before. Social Security benefits can be taxed for those with other sources of supplemental income. This includes those who are still working or receive income through investment dividends. For individuals making over $25,000, 50% of their Social Security benefits may be taxed, rising to 85% for those making more than $34,000. Married couples making over $32,000 may see 50% of their benefits taxed, with that figure rising to 85% for couples making over $44,000.
Social Security is a social insurance program consisting of retirement, disability, and survivor benefits. Retirement benefits are based on an individual’s highest 35 years of earnings. They vary depending on when they start receiving benefits. The benefits are meant to replace approximately 40% of pre-retirement income, with the percentage increasing for those who retire later. The program is funded by payroll taxes and is intended to provide a safety net for elderly Americans. It also helps cover those with disabilities and survivors of deceased workers.
Full Retirement Age and Social Security
The full retirement age (FRA) for Social Security benefits is determined by an individual’s birth year. For those born in 1943-1954, the FRA is 66. For those born in 1955, it is 66 and two months, and so on, with the FRA increasing by two months for each subsequent year until 1960. This is when the FRA becomes 67 for those born in that year and later. Claiming Social Security benefits before the FRA will permanently reduce the monthly payment amount. However, delaying benefits from the FRA up to age 70 will increase the benefit amount.
In addition to the COLA, there are several other factors that can affect an individual’s Social Security benefits. These include the average wage index, which determines the amount of benefits paid to current and future beneficiaries, and the maximum taxable earnings limit. These determine the maximum amount of earnings subject to the Social Security payroll tax. The maximum taxable earnings limit for 2023 is $142,800, up from $142,700 in 2022.
Overall, the COLA and increased maximum taxable earnings limit will provide a much-needed boost for Social Security and SSI beneficiaries. Many of these individuals rely on these payments for their basic needs. While the COLA may result in higher taxes for some recipients, it is a crucial measure to help those who have retired or are unable to work due to disability keep up with the rising cost of living.
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