Each year, beneficiaries of Social Security get a cost-of-living adjustment (COLA) that has an effect on their benefits. The purpose of this adjustment is typically to enhance the payments in order to keep up with inflation.
On the other hand, if you are not a regular reader of the news, it is possible that you are unaware of the 2.5% increase that has been brought about by this year. This would not be a desired outcome.
It is for this reason that the Social Security Administration sends out a letter to recipients on an annual basis, informing them of any changes that may occur to their payments.
During the current year, beneficiaries who have My Social Security accounts will also have the opportunity to access this message using the internet.
Unless you have canceled paper notifications in your My Social Security Account options, you should anticipate receiving this notice in the mail in the month of December.
Which of the following are some of the modifications that will be included in this notice this year?
A new 2.5% Cost-of-Living Adjustment
The rise will result in a monthly increase of fifty dollars for pensioners, whose the average check for retirees, which sits around the $1,907 mark.
Despite the fact that this number will change based on the amount of your check, it should provide you with a general notion of how things will turn out.
The rate of 2.5% appears to be very low when compared to other rises, particularly when we consider the 8.7% increase that took place in 2023; nonetheless, this may be a glimmer of a good sing in terms of bringing inflation under control.
“Although price increases have moderated, it is not as though inflation is over,” according to Joe Elsasser, a certified financial planner and president of Covisum, a software company that specializes in Social Security claiming software.
Elsasser cautions against being overly enthusiastic about the future. It is possible that inflation and prices may go up once more without much premonition.
Monthly Medicare Part B premiums to go up
The fact that premiums are going up once more this year is a piece of gloomy news for those who are enrolled in Medicare Part B, which provides coverage for physician services, outpatient hospital treatments, and certain home health services and durable medical equipment.
The new monthly payment of $185 may be painful for many people, despite the fact that it is only a slight increase of $10.30 from the previous year’s payment of $174.70.
In 2025, their yearly deductibles will climb to $257, which is a $17 increase from the $240 annual deductible that they had at the beginning of the year 2024.
It is essential to keep in mind that the premiums for Medicare Part B are deducted directly from Social Security payments, and that certain individuals have the option of requesting that their Medicare Advantage or Part D premiums be deducted as well.
The modified adjusted gross income (MAGI) of a beneficiary from two years before is used to calculate the Part B premiums that they are required to pay.
Individuals who have a max adjusted gross income (MAGI) of $106,000 or less in 2023 and married couples who have a MAGI of $212,000 or less will be required to pay the basic monthly premium in 2025.
The Income-Related Monthly Adjustment Amounts (IRMAA) will be applied to those with greater incomes, which will result in an increase in their premiums.
These income-based modifications are applied to roughly eight percent of Medicare Part B beneficiaries, as stated by the Centers for Medicare and Medicaid Services (CMS).
Income changes may prompt higher taxes
Retirees should always be on the lookout for changes in their income that could get them into a higher tax rate. This is something that they should be attentive about.
According to Brian Vosberg, a certified financial planner and the president of Vosberg Wealth Management in Glendora, California, “What we have seen with clients is kind of a surge in other income that has caused more of their Social Security to be taxed.”
It is essential to keep in mind that the income from Social Security is not the only thing that is subject to taxation; rather, the combined income, which includes the sum of adjusted gross income, nontaxable interest, and half of Social Security benefits, is what is subject to taxation.
If this figure is higher than a predetermined threshold, then it will be subject to taxation. It is possible for beneficiaries to request that withholding for federal taxes be taken from their benefit payments. This will help recipients avoid unpleasant surprises.
One of the most effective ways to avoid paying taxes that are not necessary is to be proactive about tax preparation. The purchase of an annuity that allows the interest to grow tax-deferred is one of the choices that Vosberg suggests.
Another option is to reduce income from other areas, such as withdrawals from an individual retirement account (IRA), in order to help lessen the hit.