Barrons: Social Security’s COLA Is No Bonus

[Tekward]

Bottom line:
"... the 2023 Social Security benefit hike is nothing more than a cost-of-living adjustment to try to keep up with inflation, not get ahead of it.

...a growing percentage of their benefits will be taxed. Individuals earning more than $25,000 a year, and joint filers earning more than $32,000, will have to pay taxes on some or most of their benefits. As much as 85% of your benefits can be taxed, an absolute cheat because your contributions to Social Security were already made with after-tax money.."

https://www.barrons.com/articles/social-security-benefits-cola-increase-51665786214

 

[Freedom56]

Does the author actually believe that people live on SS alone and no other income streams?

 

[teej1985]

Some people shockingly do.

The more SS gets inflated, the more people get bumped into having their SS taxed.

 

[athena53]

Does the author actually believe that people live on SS alone and no other income streams?

They certainly do. I see retirement-related posts in my FB feed on SS, saving for retirement, Medicare, etc. and the posts from people who are finding out that SS isn't enough are really sad. Then one partner dies and the household income is reduced even more. My friend who answers calls from Medicare beneficiaries with questions also encounters many people in this position.

I love all the clickbait headlines now that trumpet only the good news or the bad news:

"Seniors on SS will get historically high raises in 2023!"
"SS raises in 2023 won't be enough to compensate for rampant inflation!"

 

[rk911]

Does the author actually believe that people live on SS alone and no other income streams?

some do. my late mother, for one. she generally wouldn't accept financial help from me. her best friend of 50+ years (she was more like mom's sister than friend) shared her home with mom.

 

[oldtimer]

They certainly do. I see retirement-related posts in my FB feed on SS, saving for retirement, Medicare, etc. and the posts from people who are finding out that SS isn't enough are really sad. Then one partner dies and the household income is reduced even more. My friend who answers calls from Medicare beneficiaries with questions also encounters many people in this position.

Obviously those folks that thought they could live off SS only, must never heard of the old 3-legged retirement stool where SS was only 1 of the 3 legs.
I bet a number of those people also believe Medicare is free (no Part B premium).

 

[Chuckanut]

Does the author actually believe that people live on SS alone and no other income streams?

A lot of people do. I know of a group of women who live together and pool their SS money. They don’t live high in the hog. It’s tight. But, It works because one of them has a big fully paid off house.

 

[Freedom56]

^^^^^^ The standard deductions are also increasing to offset the jump in income in 2023.

"Married taxpayers were entitled to a standard deduction of $25,900 in 2022—that number is expected to jump to $27,700 in 2023. Single and married individuals filing separately will see the standard deduction rise to $13,850, up from $12,950 in 2022."

 

[jldavid47]

Bottom line:
"...a growing percentage of their benefits will be taxed. Individuals earning more than $25,000 a year, and joint filers earning more than $32,000, will have to pay taxes on some or most of their benefits. As much as 85% of your benefits can be taxed, an absolute cheat because your contributions to Social Security were already made with after-tax money.."

What the author does not point out in that statement is that only half of your Social Security income counts towards the 25000/32000 limits. (100% of other income applies towards the limit). A married couple with only Social Security income and nothing else would have to get over $64000 in benefits before any would be included in adjusted gross income. Even if income goes somewhat over with interest/dividends IRA distributions/etc. the standard deduction ($28700 for a married couple both over 65 this year) could wipe out any tax liability.

The actual calculation is complex but completely disclosed in the Social Security Taxability Worksheet provided by the IRS. I have that worksheet in a spreadsheet for tax planning. If you are interested in the gory details you can look at IRS publication 915:

https://www.irs.gov/publications/p915

 

[jldavid47]

^^^^^^ The standard deductions are also increasing to offset the jump in income in 2023.

"Married taxpayers were entitled to a standard deduction of $25,900 in 2022—that number is expected to jump to $27,700 in 2023. Single and married individuals filing separately will see the standard deduction rise to $13,850, up from $12,950 in 2022."

Plus $1400 for each taxpayer 65 years of age or older.

 

[jldavid47]

Does the author actually believe that people live on SS alone and no other income streams?

Social Security income covers all of our necessary living expenses with some left over. We dip into savings for "extras" (e.g. vacation, new car, major home improvement). If we spent nothing on "extras" we could live on our combined SS income, no problem. Then again, we have no debt and live in a relatively lower cost area.

 

[Amethyst]

How is this a bad thing? Most working people probably aren't getting raises that keep up with the cost of living.

Someone of SS age would need to believe in Santa and the Denture Fairy, to imagine that SS's job is to get ahead of inflation.

Bottom line:
"... the 2023 Social Security benefit hike is nothing more than a cost-of-living adjustment to try to keep up with inflation, not get ahead of it.

https://www.barrons.com/articles/social-security-benefits-cola-increase-51665786214

 

[jldavid47]

How is this a bad thing? Most working people probably aren't getting raises that keep up with the cost of living.

Someone of SS age would need to believe in Santa and the Denture Fairy, to imagine that SS's job is to get ahead of inflation.

+1

There is no way to exactly project inflation going forward so the only alternative is to adjust based on actual recent history. What else would the author want them to do?

When inflation eventually drops, retirees will be ahead of the curve instead of behind it. It all evens out in the long run.

 

[aja8888]

Does the author actually believe that people live on SS alone and no other income streams?

Four people in my extended family only have SS income, two have SS from working careers, two have SSDI. Sad, but lots of people have to live on SS.

DW and I have been helping them along the way and will continue to do so.

 

[Freedom56]

Social Security income covers all of our necessary living expenses with some left over. We dip into savings for "extras" (e.g. vacation, new car, major home improvement). If we spent nothing on "extras" we could live on our combined SS income, no problem. Then again, we have no debt and live in a relatively lower cost area.

The author of that article in Barron's clearly does not do his own taxes or understand basic arithmetic. Taxes are progressive and so are deductions. The author gave the impression that the COLA increase will result in lower income after taxes which is completely false. The increase will help many people.

Some people can make it on SS alone. We have zero debt also but with three homes all in expensive locations. The only location we could make it on social security alone is our home Southern California (surprised?) and sell the other properties. Proposition 13 has kept property taxes low. Electricity costs us zero because of solar panels. A lot of produce grows year round in our vegetable garden. Gas heating is inexpensive as heating costs are low in the winter. But we would have to give up all the travel and leisure.

 

[Sunset]

+1

There is no way to exactly project inflation going forward so the only alternative is to adjust based on actual recent history. What else would the author want them to do?

When inflation eventually drops, retirees will be ahead of the curve instead of behind it. It all evens out in the long run.

Not really. Every year after retirees pay higher costs for things due to inflation of various rates, SS goes up to catch up.
Even if Inflation dropped to 0% next year, retirees would only be caught up to the curve not ahead of it.
Should we get deflation, since SS won't go down, then with a SS increase of 0% , and lower costs retirees would get a little ahead of the curve. So would everyone else as costs would decrease.

 

[Angel Beagle]

True, my land owner is increasing the land rental by 100.00 each month so that will take my increase plus 6.00 on top of that.

 

[Angel Beagle]

Obviously those folks that thought they could live off SS only, must never heard of the old 3-legged retirement stool where SS was only 1 of the 3 legs.
I bet a number of those people also believe Medicare is free (no Part B premium).

Part be is slightly lower this year. It really not enough to make a real difference.

I had Part B removed from my Medicare plan.

 

[Amethyst]

Well put. I was only piqued by the author's editorializing, which implied that there is an expectation of a taxpayer-funded SS "bonus." Those people who think they're not getting their deserved "bonus" would be the same ones who complained, while working, of having to pay FICA taxes.

Not really. Every year after retirees pay higher costs for things due to inflation of various rates, SS goes up to catch up.
Even if Inflation dropped to 0% next year, retirees would only be caught up to the curve not ahead of it.
Should we get deflation, since SS won't go down, then with a SS increase of 0% , and lower costs retirees would get a little ahead of the curve. So would everyone else as costs would decrease.

 

[athena53]

Obviously those folks that thought they could live off SS only, must never heard of the old 3-legged retirement stool where SS was only 1 of the 3 legs.
I bet a number of those people also believe Medicare is free (no Part B premium).

I know- I had to read an 800-page book by one of the founding actuaries of SS for an actuarial exam so I learned it early. Sadly, it's too late to point that out to someone who's now trying to live on an $800/month SS payment.

 

[jebmke]

Does the author actually believe that people live on SS alone and no other income streams?

some do; I have been surprised. Doing taxes for TaxAide I often have people come in just to file (they don't understand that they don't need to file). Often they live with a relative -- essentially free rent but otherwise pay their own way.

 

[MRG]

I know- I had to read an 800-page book by one of the founding actuaries of SS for an actuarial exam so I learned it early. Sadly, it's too late to point that out to someone who's now trying to live on an $800/month SS payment.

+1
Thats my one sister. She was self employed and really had a problem paying all that SS, so she lied about her income. Always drove new cars though.

 

[daylatedollarshort]

The benefits would depend where you live, but people with $800 a month in SS would also likely qualify for a whole slew of other assistance programs, like Medicaid, subsidized housing, free meals, food bank help, utility help and a bunch more. In our area there is a good tax base, so the senior centers have really a lot of support - free meals and activities, budget help, door to door free or almost free transportation, senior roommate matching, subsidized ride share programs, legal help and more.

 

[savory]

It appears from the responses that many people live on SS. News reports confirm that.

I have wondered is that the result of poor retirement planning or lack of choice due to an income stream that did not allow for adequate savings. (I do understand that there might be a medical issue or other event that requires saved funds to be redirected).

For those who have some experience with friends or relatives, how did they get to living only on SS?

Just a curiosity of mine from a social science point of view.

 

[jldavid47]

Originally Posted by jldavid47

There is no way to exactly project inflation going forward so the only alternative is to adjust based on actual recent history. What else would the author want them to do?

When inflation eventually drops, retirees will be ahead of the curve instead of behind it. It all evens out in the long run.

Not really. Every year after retirees pay higher costs for things due to inflation of various rates, SS goes up to catch up.
Even if Inflation dropped to 0% next year, retirees would only be caught up to the curve not ahead of it.
Should we get deflation, since SS won't go down, then with a SS increase of 0% , and lower costs retirees would get a little ahead of the curve. So would everyone else as costs would decrease.

Yes really. This year recipients got a 5.9% increase. Inflation ran higher. Net loss. Recipients are getting an 8.7% increase in 2023. If inflation runs at, say, 6% that's a net gain over the course of 2023. The logic is no different if deflation sets in and we get a 0% increase. Over the long term social security increases pretty much match the long-term inflation rate which is what I meant by "It all evens out in the long run." If it doesn't keep up with some retirees spending needs that's a different problem.