Social Security recipients could see a record 10.5% cost of living adjustment next year, the bipartisan Senior Citizen League predicts, but that could bump some beneficiaries into higher tax brackets. Paying more in taxes could have the net effect of reducing retirees’ financial ability to move into a long-term care facility.
A 10.5% COLA in 2023 would mean about $175 more per month for the average beneficiary, increasing the average monthly retirement benefit of $1,668, Motley Fool reported. The amount of Social Security income exempt from taxes, however, would remain the same. According to a Washington Times report, that amount hasn’t changed since 1984.
Retirees must pay taxes on Social Security benefits if they have additional income from wages, self-employment, interest, dividends and other taxable income that must be reported of more than $25,000 for a single person or $32,000 for a married couple. Beneficiaries who earn more than $34,000, and couples who earn more than $44,000, can be taxed on up to 85% of their benefits.
The annual COLA is tied to inflation rates, and the Consumer Price Index rose 9.1% over the past year, according to the July 13 Bureau of Labor Statistics report.
“There can be some very long-term effects to high inflation COLAs,” Mary Johnson, a policy analyst at the Senior Citizens League, told Fox Business. “It’s like a no-win situation.”
In an effort to slow inflation, the Federal Reserve increased interest rates by 0.75% in June and is expected to increase rates again later this month by as much as an additional 0.75%.
The downside to the interest rates hike for senior housing, National Investment Center for Seniors Housing & Care Chief Economist Beth Burnham Mace previously told the McKnight’s Business Daily, is that fixed mortgage rates will increase, which could make it more difficult for older adults to sell their homes and move into senior living communities. The proceeds from home sales often are used to finance such moves.
