By Michael Donahoe, CFP®
Between leaving the workforce, understanding your Social Security benefits, and defining your new daily routine, retirement can be quite overwhelming. And after a year of what feels like never-ending price increases on basic everyday necessities, many retirees are feeling the pressure to stretch their wallets further and further. Navigating the transition from working years to retirement is challenging enough without adding record levels of inflation to the mix.
The good news is the Social Security Administration just released the annual cost-of-living increase, and retirees are in for a pleasant surprise. The better news is we at Harvest Asset Group are here to help you understand and make the most of this change.
2023 Cost-of-Living Adjustment
In 2023 the COLA is 8.7%, which is the biggest increase in 40 years. With this change, Social Security benefits are expected to increase by more than $140 per month starting in January 2023. There is also an increase in the Social Security tax cap. The cap is increased from $147,000 to $160,200, meaning Social Security taxes will not be withheld from income earned above that amount.
This substantial increase in benefits will hopefully provide retirees some relief from the rising cost of goods and services. Historically, a COLA that fails to keep pace with inflation only serves to exacerbate financial hardships. It’s important to keep in mind that the COLA will affect pre-retirees and retirees differently. Here’s what to expect based on where you are in your retirement journey.
Retirees Taking Social Security
While this increase is good news for retirees, it’s not a license to change spending habits all that much (as most retirees know all too well).
It will still be necessary to keep track of your finances, spending, and—importantly—your tax liabilities; some beneficiaries could experience increased taxes in the coming years, depending on their thresholds.
Retirees Not Taking Social Security
Retirees who have not started claiming Social Security will still reap the benefits of this increase even if they don’t take Social Security this year. There is never a decrease in the COLA, so the higher payments are here to stay. Keep in mind that in some cases, it’s worth holding off taking Social Security for several years once you’re eligible. Of course, the benefits of doing so vary based on individual circumstances.
Work With an Experienced Professional
No matter where you are on your retirement journey, working with an experienced professional can make all the difference. Depending on how much you have in savings, when and how you claim your Social Security benefits could very well be the most important retirement decision you make.
Or if you are on the younger side, Social Security is not enough to fully support many individuals’ desired standard of living. Building a retirement plan that doesn’t rely on SSA benefits could be the best course of action.
At Harvest Asset Group, we can help you navigate the Social Security process, allowing you to feel confident and prepared for the next chapter of your life. If you are nearing retirement and have questions about what role Social Security will play in your overall plan, we would love to hear from you. Call us at (207) 775-1151 or email us at email@example.com.
Michael Donahoe is the founder and principal of Harvest Asset Group, LLC, an independent, fee-only financial planning and investment management advisory firm in Portland, Maine. Michael enjoyed a successful corporate career in marketing and sales before transitioning to the financial planning profession, founding his firm in 2012, where he now leads the client services team and serves as the firm’s chief compliance officer. Michael earned his MBA degree from George Washington University and completed his educational requirements to earn the CFP® mark of distinction at the University of California, Berkeley. He is a Fee-Only and NAPFA registered financial advisor, a designation which followed the completion of rigorous continuing education requirements. Michael has lived in the Portland area since relocating from San Francisco in 1995 to be closer to family. He is active in community affairs and spends his non-working time enjoying the natural beauty of Maine.