This article includes some good news at a time when many retirement savers can use some… As you may have heard last week, the Social Security Administration announced an 8.7% cost of living increase for retirement benefits in 2023. (Source: ssa.gov ) This benefit increase applies both to those already receiving benefits AND to those not receiving benefits yet.
Those already receiving benefits will see the increased amount reflected in payments starting January 2023.
Those not yet receiving benefits will see the increased amount reflected on benefit projections within the ssa.gov online portal around January 2023 once annual benefit projection updates are posted. Does This Cost of Living Increase Positively Impact Long-term Planning? Yes. See charts below. The charts below assumes Jane’s benefits at age 65 were going to be $24,000 per year before the recent cost of living increase. They also assume that following the large 8.7% increase in 2023, the cost of living increase is 2% per year on average moving forward. As a result of the 8.7% cost of living increase in 2023: In Retirement Year 1 - Jane receives about $2k more per year By the time she reaches age 85 - She’ll have received about $50k more from social security. By the time she reaches age 90 - She’ll have received about $67k more from social security. If she reaches age 100 - She’ll have received about $104k more from social security. As shown above, the 8.7% cost of living increase for social security benefits in 2023 could lead to a significant increase in total lifetime benefits received. Once the government has provided a cost of living increase, they’ve never reduced that new stepped up benefit amount in future years. At least in the past, increases in social security benefits have been permanent. While reading this, some may be wondering, "how is this being paid for?" ... Good question. After all, the money has to come from somewhere (even if it's from simply printing more of it, which is finally catching up to us with the inflation we're experiencing now...) It may be reasonable to think that this large increase in social security benefits also increases the odds of future tax hikes, which increases the incentive to build Roth assets now while tax rates are still below long-term averages (see article: While Markets Down, Roth Conversion? ). Pre-tax retirement accounts will be harmed if taxes go up in the future, Roth will not (at least not under current tax rules). In summary, while high inflation does more harm than good, the large increase in social security benefits coming in 2023 is at least one potential positive from high inflation for those close to retirement and already retired. Want To Discuss This Individually? 1 - For clients: Call or email me any time as always. 2 - For non-clients: Complete the form on the website to request a retirement planning consultation: www.rolekretirement.com This is article is for informational purposes only and should not be considered as tax or legal advice. Advice is only provided after entering into an Advisory Agreement with the Advisor. See other disclosure here: Disclosures