The talk of 2022 has been about the spike in inflation and its trickle-down effect on the financial markets. Considering the recent uptick in inflation, the IRS announced the changes to Social Security, Medicare, Retirement Accounts, and Taxes.
Social Security:
The Social Security Administration announced the annual Cost of Living adjustment of 8.7%, or an average of $140 per month, to go into effect on January 1st, 2023. This is the largest increase since 1981 for the approximately 70 million Americans who collect benefits. While a large increase is needed, and much appreciated, by retirees to keep up with inflation, this could spell bad news for the longevity of the Social Security Trust Fund. We previously wrote about the solvency of the trust fund and the latest projection was for the fund to be fully depleted by 2033. This payment increase could shorten that timeframe even further.
The Social Security Administration did not change how much workers are paying into the program, but they did increase the wage base (the maximum earnings that are subject to the social security tax) from $147,000 to $160,200. This should help offset some of the additional outflows but, as we stated before, the entire system needs to be revamped to ensure the longevity of the program.
Social Security and SSI beneficiaries are normally notified by mail starting in early December about their new benefit amount. Most people who receive Social Security payments will be able to view their COLA notice online through their personal my Social Security account. People may create or access their Social Security account online at www.socialsecurity.gov/myaccount.
Medicare:
Annual premiums for Medicare are going down for 2023. After the 14.5% jump from 2021 to 2022, the cost for Part B will decrease by approximately 3% for 2023. This will help keep more of the Social Security increase mentioned above in retirees’ pockets – the opposite of what happened last year.
Retirement Accounts:
The IRS also announced an almost 10% increase in the maximum contributions that can be made to retirement accounts. Employees can now contribute up to $22,500 (increased from 20,500 in 2022) to employer plans (401(k), 457(b), 403(b), etc.) if they are under the age of 50, or $30,000 (increased from $27,000 in 2022) if they are age 50 or older.
IRA account contributions increased to $6,500 (from 6,000 in 2022) if under 50, or $7,500 (from $7,000 in 2022) if 50 or older.
Taxes:
Finally, the tax brackets have all been adjusted to account for the recent spike in inflation. The brackets all remain the same but the income bands all increased by 7%. Additionally, the standard deduction increased to $13,850 (from $12,950 in 2022) for single filers, and $27,700 (from $25,900 in 2022) for married filers.
Gregg Brant, CFP®, APMA®, MBA
Family Wealth Advisor | Contributor
Gregg is a financial planner who is passionate about helping first responders and their families navigate their financial lives with confidence. Having a spouse who is a professor in the State University System, Gregg has worked with the Florida Retirement System first-hand for his own personal financial planning.
Now Gregg is on a mission to take this knowledge and disseminate it to the people who deserve it most; our first responders.
