What Does the Increased Social Security Benefit Really Mean?

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In 2023, the cost-of-living adjustment (COLA) for Social Security is increasing. As a result, more than 65 million Social Security beneficiaries will receive an 8.7 percent increase in their benefits. That equals roughly $146 for the average Social Security recipient.

But that’s not all that’s going up. Someone has to pay for this increase. How will increasing the Social Security benefits help recipients? And who pays for it?

Good and Bad Benefits in 2022

In 2022, with 8.2 percent inflation, the Social Security benefit COLA was 5.9 percent. Although this seemed low at the time, it was the most increase since the 4.1 percent COLA in 2005.

But the 5.9 percent didn’t look as good when Medicare’s increase was factored into the equation. Medicare’s premium increased by 14.5 percent. This was the largest increase in its history.

What are the actual numbers, and how did these affect Americans’ benefits?

For example, your Medicare premium was $148.50 in 2021; then it jumped to $170.10 this year.

Meanwhile, if you were receiving Social Security benefits of $2,000 per month, that 5.9 percent COLA would have given you an additional $118 per month—a $2,118 monthly total. Accounting for the increase in Medicare, you would have received an additional $52.10 per month.

Now, take inflation into account: that knocked off an additional $4.27 of the increase. So, in reality, for that $2,000 monthly benefit, you received an increase of $47.83.

These are general numbers, but you probably get the point.

The 2023 increase of 8.7 percent should fare better. It’s the highest since the COLA increase in 1980. That year it was 14.3 percent, and inflation was at 14 percent.

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2023 Highest COLA Since 1980

The COLA for Social Security began in 1975. It is based on fluctuations in inflation according to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The Social Security Administration takes each month in the third quarter’s inflation rate and compares it to the same time the previous year.

For example, in July 2022, the CPI was 8.5 percent, and 8.3 percent in August. It went down to 8.2 percent in September. The 8.7 percent COLA for 2023 was based on these figures.

The COLA helps protect retirees from truly living on a fixed income since they receive some increases in their income.

This 8.7 percent increase equates to $146 for a single retiree who receives $1,827 in benefits monthly. A married couple receiving $2,972 monthly will have a $238 increase.

The increase will appear in your January 2023 check.

Some Medicare Premiums Decrease Slightly

The Medicare Part B premium also increased in 2022. The explanation was to pay for a high-priced Alzheimer’s drug, Aduhelm, that was new on the market. But there have been changes in the drug’s use and price. Other Part B services and items also came in lower than expected. According to the Centers for Medicare and Medicaid Services (CMS), this resulted in large reserves in the Part B account.

The result is that the Medicare Part B premium will decrease by $5.20 monthly.

But those recipients who pay based on their modified adjusted gross income will continue to pay the higher premiums. Depending on how much a recipient extends above $97,000 ($194,000 for married) modified adjusted gross income, their Part B premium will be $230.80 to $560.50.

The CMS estimates that approximately 7 percent of Medicare recipients pay this amount.

Social Security Cap Increase

Working Americans pay 6.20 percent for Social Security payroll tax. They pay and additional 1.45 percent for Medicare. Their employers match the combined rate with an additional 7.65 percent. The self-employed are required to pay 15.30 percent.

Those taxpayers who earn more than $200,000 (married couples filing jointly who earn $250,000) pay an additional 0.9 percent of Medicare taxes.

Higher-income taxpayers will also have to contend with additional Social Security taxes in 2023. That’s because the maximum amount of earnings subject to Social Security taxes will increase. The maximum amount of earnings is known as the wage base.

The wage base will rise by 9 percent. As a result, the 2022 wage base of $147,000 will go up to $160,200. This adjustment increases taxes for approximately 6 percent of workers. It is not based on the CPI but rather on the national average wage index. This is calculated by the Social Security Administration.

In 2018, the wage base was $128,400. The jump to $160,200 reflects a 25 percent increase.

There’s no cap on Medicare.

Does the Cost-of-Living Adjustment Help?

It all depends on whose ox is getting gored. If you’re a retiree on Social Security, the COLA will help diffuse this year’s inflation hit and last year’s Medicare hike. And even though Medicare will only be about $5 lower, it’s better than an increase.

But if you’re in a high-income bracket, be prepared. Your paycheck is going to be a little smaller next year.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.