Most seniors think that the cost of living adjustments (COLA) made to their Social Security benefits this year won’t adequately keep pace with inflation and rising costs, a recent survey said.
Fifty-four percent of respondents said that this year’s historical 8.7% Social Security increase, which boosted the average monthly benefit by about $140, is not enough to cover the sharp increase in the cost of living, according to a recent survey from The Senior Citizens League (TSCL). Roughly the same number of respondents said that their household costs in 2022 rose by more than 8.7%.
February’s Consumer Price Index (CPI), a measure of inflation, increased by 6% year-over-year, a slight slowdown from 6.4% growth in January. However, inflation remains well above the Federal Reserve’s 2% target rate.
The Fed has pledged to keep raising interest rates to bring inflation back down. For consumers, it has meant dealing with continued high prices and interest rates that could last well into the end of the year.
“February inflation …has moderated …but some prices remain stuck in high gear,” TSCL said in a statement. “Long term trends indicate a significant drop in the average monthly rate of inflation over the past 12 months and suggests that the next annual cost of living adjustment, in 2024 could drop below 3%.”
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Some beneficiaries face paying taxes on Social Security
In addition to rising costs, many more Social Security beneficiaries also face paying taxes on their Social Security because of last year’s COLA adjustments.
Social Security recipients can owe taxes on up to 85% of their Social Security benefits when their “combined income” is over $25,000 for single filers or $32,000 for couples filing jointly. This threshold is not adjusted for inflation, unlike income tax brackets, according to TSCL.
Because of last year’s 5.9% COLA adjustment, 51% of beneficiaries said they are concerned they will owe taxes on their benefits. One in five said it’s the first time they’ve earned over the threshold limit and potentially faced paying taxes on benefits.
“The worries will continue next year due to an 8.7% COLA this year,” the Senior Citizens League said. “Had these income thresholds been adjusted since the tax on Social Security benefits became effective in 1984, the $25,000 level today would be about $73,000 and the $32,000 level would be about $93,200.”
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Americans miscalculate Social Security benefits, survey says
Most adults between 50 and their early 60s have a good handle on what age they will start claiming Social Security benefits. Still, many are underestimating their yearly benefits by 11.5%, or about $1,896 on average, according to a survey by American Enterprise Institute and George Mason University.
A quarter of the respondents underestimated their benefits by $5,167 or more and 10% overestimated by roughly $5,319.
However, the closer respondents got to retirement age, the better their forecasting of benefit amounts. Those receiving personalized information about future Social Security benefits through Social Security statements significantly reduced their miscalculations.
“Having an accurate estimate of one’s Social Security benefit can guide retirement planning and is particularly important for people approaching retirement,” the report said. “However, prior research suggests that many people do not have accurate expectations of their future benefits.”
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