Social Security recipients get a cost-of-living adjustment (COLA) every year that changes their benefits. Typically, the COLA raises benefits to keep pace with inflation. That being said, if you don’t read a lot of news, you might not know about the 2.5% rise this year, which is not a good thing.
This is why the Social Security Administration sends a letter every year to those whose benefits have changed. Beneficiaries with My Social Security accounts will be able to see this notice online this year as well. This notice should arrive in the mail to you in December, unless you have turned off paper notifications in your My Social Security Account.
What new features will this year’s notice include?
A new 2.5% Cost-of-Living Adjustment
Due to the increase, retirees, whose average monthly income is approximately $1,907, will receive an additional $50 each month. This figure will vary depending on the size of your check, but it should provide a general idea of what to expect.
When we look at the 8.7% increase that happened in 2023, 2.5% seems like a small increase compared to other years. However, this could be the start of a positive trend toward lowering inflation.
“Although price increases have moderated, it’s not as though inflation is over,” says Joe Elsasser, president of Covisum, a software company that helps people claim Social Security. He warns people not to be too optimistic. Prices and inflation could go up again without much notice.
Monthly Medicare Part B premiums to go up
The premiums for Medicare Part B are going up again this year, which is negative news for people who have signed up for it. Part B covers doctor visits, outpatient hospital stays, some home health services, and durable medical equipment. The increase in this year’s payment of $174.70 was only $10.30, which means that many people may find the new $185 monthly installment difficult to afford.
Between 2024 and 2025, their yearly deductibles will rise from $240 to $257. This is an increase of $17. Remember, Medicare deducts Part B premiums directly from Social Security checks. Additionally, some individuals have the option to request the deduction of their Medicare Advantage or Part D premiums.
Part B premiums are based on the beneficiary’s modified adjusted gross income (MAGI) from the previous two years. People who made less than $106,000 a year in 2023 will pay the standard monthly premium in 2025. Married couples earning less than $212,000 will face higher insurance costs.
People with higher incomes will have to pay more for insurance because of income-related monthly adjustment amounts (IRMAA). The Centers for Medicare and Medicaid Services estimate that these changes will affect about 8% of Medicare Part B recipients based on their income.
Income changes may prompt higher taxes
Retired individuals should constantly monitor any changes in their income that could potentially place them in a higher tax bracket. Prez of Vosberg Wealth Management in Glendora, California, CFP Brian Vosberg says, “What we’ve seen with clients is a rise in other income that has caused more of their Social Security to be taxed.”
Remember, we do not tax Social Security income separately. Instead, it is subject to taxation alongside your adjusted gross income, untaxed interest, and half of your Social Security benefits. If this number exceeds a certain limit, it will be subject to taxation. To avoid any unpleasant surprises, beneficiaries have the option to request the deduction of federal taxes from their benefit payments.
Planning your taxes ahead of time is the best way to avoid paying too much. Vosberg recommends either purchasing an annuity, which allows the interest to grow tax-free, or reducing income from other sources such as IRA withdrawals to mitigate the impact.
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