We all watch the numbers skyrocket—grocery prices, gas prices, rent—all signs to the sinister conclusion of “inflation.”
But is it all bad? And how does inflation affect those on fixed incomes? For social security beneficiaries, inflation looks like payday, on the surface. Each year, the Social Security Administration uses an inflation index to make a Cost-of-Living Adjustment (COLA) to checks received by beneficiaries. Based on the current high inflation rate, many are positing the COLA could be up to 8%.
However, inflation means all prices go up—which is bad. One of the main worries Social Security receivers have is the premiums for Medicare going up. If the increase is too high, the COLA adjustment will be meaningless and eaten by that increase. According to CBS news, “the standard cost for Medicare’s Part B jumped 14.5% to $170.10 per month in early 2022, an increase of $21.60, according to the Centers for Medicare and Medicaid Services.” Another jump like that could hit $200.00 per check and make any COLA irrelevant.
Another concerning issue is taxation of Social Security benefits. While there are annual adjustments to COLA and Medicaid premiums, the income cut-offs for taxation of this money have not been updated since 1993. This means for many the climb in their checks only ensures that half of it is taxed away. According to Charles Schwab: “If a couple filing jointly has “combined income”—which is calculated by taking your adjusted gross income, plus half of your Social Security benefits, plus non-taxable interest—of $32,000 to $44,000, then up to half of their benefits will be taxed at their regular income tax rate. If their income is above $44,000, up to 85% of their benefits will be taxed. (For single filers, the numbers are $25,000-$34,000, and anything above $34,000.)”
This being said, those numbers are certainly low, and the number of citizens who will qualify and be taxed by these standards will increase with inflation and the increase in checks due to COLA. These taxation limits were originally instated in order to use the taxes collected to replenish the Social Security program funds, but after almost 30 years, is it time for things to be readjusted?