Seniors: This year's big increase in Social Security benefits is falling short
For the past two months, the biggest increase in Social Security benefits in four decades has been delivering much-needed breathing room for millions of Social Security recipients.
Right? Many seniors disagree.
According to a new survey by the Senior Citizens League, 54% of older Americans think the 8.7% increase in the Social Security cost-of-living adjustment (COLA) this year won't keep up with inflation.
Worse yet, virtually all of the survey’s respondents (96%) don’t think this year’s sizable bump will give them a chance to get their feet on the ground again and catch up.
And, furthermore, they worry that the increased income could result in bigger tax bills. This year’s souped-up COLA — which boosted the average retiree benefit by more than $140 per month starting in January — will push some retirees over income thresholds, which are not indexed for inflation. Thus, requiring them to pay income taxes on part of their Social Security benefit. (Many who have not paid tax on their benefits in the past.)
More than half (51%) of the respondents worry they will pay more in 2022 taxes due to the 5.9% COLA increase they received last year.
“Even as inflation moderates, it will be extremely difficult for lower and modest income seniors, and those who have been retired the longest to ‘dig out’ from the shortfall between what Social Security beneficiaries received over the past two years, and the cumulative effect of actual inflation,” Mary Johnson, a Social Security policy analyst for The Senior Citizens League, told Yahoo Finance.
Women may feel more stress
Nearly 9 out of 10 people aged 65 and older receive a Social Security benefit, according to the Social Security Administration. Among elderly Social Security beneficiaries, 12% of men and 15% of women rely on Social Security for 90% or more of their income.
For the typical retiree, it covers about half of their retirement income, according to Anqi Chen, a senior research economist and the assistant director of savings research at the Center for Retirement Research at Boston College.
The anticipated Social Security inflation stress this year, however, likely will hit women retirees harder than their male counterparts.
“Women 65 and older typically have less retirement savings and smaller Social Security payments than men due to the earnings gap and time out of the workforce for caregiving and are more than twice as likely as men to be living in poverty,” Cindy Hounsell, president of the Women's Institute for a Secure Retirement, told Yahoo Finance. “The big COLA certainly helped them, but the costs of so many other items are so expensive that it may not be enough.”
Standard of living had already ‘worsened’
Seniors, overall, have been feeling the gap for months now. Last fall, nearly 2 in 5 of the 1,429 retirees The Senior Citizens League surveyed reported that their standard of living had worsened since March of 2020—and they had depleted savings faster than planned. Roughly the same percentage said that they had no savings, had piled on debt, and had tapped low income assistance programs.
When the Social Security Administration, the federal government agency that oversees the benefits, announced the increase for this year, the largest since 1980, when the COLA was 11.2%, there was a resounding echo of applause. That’s because it raised the average retiree benefit by more than $140 per month.
The adjustment — coupled with a decrease in Medicare Part B premiums this year — was expected to make a significant difference in making ends meet for the more than 70 million retired senior citizens and disabled workers.
While in January inflation, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), the same index that’s used to calculate the COLA, was 6.3%, down from 7.5% a year ago and the high of 9.1% in June of 2020, many prices from food to gasoline remain persistently high.
The COLA helps ‘tread’ water. Sort of.
The aim of the annual COLA is to allow beneficiaries to tread water in the face of rising prices and is calculated by averaging together the CPI-W consumer price index for the third quarter of the year – July, August, and September of 2022 – and then comparing that figure with the same data last year.
The once a year inflation adjustment began in 1975, under a formula made into law by Congress, to help beneficiaries stay abreast of increasing day-to-day living costs. But there are concerns about how it’s calculated.
“On the question of whether or not the COLA is adequate, there are a couple things going on,” Emerson Sprick, senior economic analyst at the Bipartisan Policy Center, told Yahoo Finance. “One is that CPI-W might not be an appropriate index for retirement benefits because retirees have different spending patterns than the rest of the population.”
As important as Social Security’s annual cost-of-living adjustments are, “they have not prevented those modest benefits from eroding for many decades,” Nancy Altman, co-director of Social Security Works, said.
“Seniors and people with disabilities generally spend disproportionately on health care and prescription drugs, whose costs generally are rising the fastest, and less on the latest technology, where prices are rising slower,” she added.
Tax worries?
If you file a federal tax return as an individual and your combined income – your adjusted gross income, plus nontaxable interest earned on investments, plus one-half of your Social Security benefits – is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If you earn more than $34,000, up to 85% of your benefits may be taxable.
For those of you who file a joint return and have a combined income between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits. If your joint income is more than $44,000, up to 85% of your benefits may be taxable.
A rise in your income if you are a Medicare beneficiary — whether due to the COLA, earnings from employment, retirement savings, or pensions —could also impact what you’ll pay in Medicare premiums. If your income is higher than $97,000 (individuals) or $194,000 (joint), you will see an increase in Part B and Part D premiums.
Those who receive low-income assistance for healthcare costs could also see a reduced amount of assistance they receive through Medicare Savings programs or Medicare Extra Help, or Medicaid.
It’s not all bleak news
In a new Gallup poll out today, older Americans, more than half (63%) of adults 65 and older say they’re satisfied with the Social Security and Medicare programs. Lower-and middle-income adults, however, are slightly more likely to be satisfied with Social Security and Medicare than upper-income adults with household income over $100,000, according to the survey of 1,001 adults, conducted Jan. 2-22, 2023.
“Everyone’s hurting because of high inflation, but Social Security is the one program where people are actually doing better,” Marc Goldwein, the senior vice president and senior policy director for the Committee for a Responsible Federal Budget, told Yahoo Finance. “The COLA has been running way ahead of actual inflation. Who else do you know that got an 8.7% guaranteed raise to start the year, after a 6% raise the year before?”
Kerry is a Senior Reporter and Columnist at Yahoo Finance. Follow her on Twitter @kerryhannon.
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