The Social Security Administration provides benefits to retired employees. These benefits can become a substantial part of your retirement plan, especially since they are adjusted according to each year’s cost-of-living expenses. By January 2023, Social Security and Supplemental Security Income (SSI) benefits will increase by 8.7% to account for inflation.
The Social Security Administration applies a COLA, or the cost-of-living-adjustment, to each year’s benefits. The purpose of the COLA is to ensure that SSI benefits maintain their value in the face of inflation.
It is important to incorporate the 2023 COLA increase in your financial plan so that you can make sure that your financial goals are accurate to your financial situation.
2 ways the COLA increase may affect plans for retired people
If you have been retired for a few years, you have most likely already experienced a COLA increase in your SSI benefits. However, this year’s COLA increase is larger than any previous increase since the 1980s. As a result, it is important for you to know how your financial plans may be affected as a retiree. Your financial plans may be affected by the 2023 COLA increase because it may:
1.Increase your supplemental income — Many retired people depend on their retirement fund, such as their 401(k), for regular income distribution. However, inflation can cause retirees to take out more money from their fund than they originally planned. The COLA increase can supplement retirees’ main sources of income and give them more financial security during times of inflation.
2. Increase your tax bracket status — The purpose of the COLA is to cover the difference between your current cost of living and the previous year’s cost of living. However, it is possible that the extra money from your SSI benefits will bump your tax bracket status, requiring you to pay higher taxes on your higher income.
You should reach out to your CERTIFIED FINANCIAL PLANNER™ professional if you have any questions about what this year’s COLA increase means for your retirement plan.
Talk to a ProVise CFP® professional about how the 2023 COLA may impact your retirement
If you are a retiree, you may notice a jump in your supplemental income starting in 2023. Establishing a solid financial plan can help you prepare for increased SSI benefits starting this January.
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about financial planning as a retiree? Contact ProVise today to schedule a complimentary consultation.