The increase of 8.7 percent in Social Security payments for 2023 is substantial. But past increases have often been accompanied by increases in the amount of money subtracted from your Social Security payment to pay Medicare Part B premiums. So how much of that 8.7 percent increase will you see in your monthly check? Actually even more than 8.7 percent, because along with the increase in the cost of living adjustment (COLA) Medicare Part B premiums are being reduced: by $5.20 monthly on the standard monthly premium from 2022.
Your Medicare Part B and D premiums are based on your income as reported on your 2 year prior’s tax return (example; 2023 premium based on 2021 tax return):
There is one contrarian factor: The 2022 increase in Medicare Part B was the biggest since 2017, and one of the biggest of all time, the standard monthly premium increasing from $148.50 to $170.10.
Can the U.S. Afford This?
For years we have heard dire warnings that the Social Security Administration was running out of money, “going broke.” There were predictions of a collapse of the system by 2035. So how can the government afford giving Social Security recipients such a substantial raise? A brief look at Social Security’s finances offers some insight.
Most of the money for Social Security benefits payments comes from FICA taxes on workers and employers.1 In 2022, that was 12.4 percent of a worker’s income up to $147,000 divided evenly between the worker and the employer. Self-employed workers pay the full 12.4 percent. In 2021, those taxes brought in $981 billion, accounting for 90 percent of Social Security’s revenue, about 80 percent of which goes to retirees and “survivors” with the other 20 percent held to cover disability insurance payments.
In 2021, the bulk of the remaining 10 percent, according to the Social Security Administration’s annual report, came from:
Social Security generally takes in more than it pays out, so it has built a reserve that totaled $2.85 trillion at the end of 2021. However, baby boomers are taking a bite out of that reserve, a concern that some predicting the System’s demise by 2035. That prediction is disputed, however, even though accommodations will need to be made. According to the American Association of Retired Persons (AARP)2:
“If reserves are exhausted, the Social Security programs will continue to pay benefits out of their annual tax revenue. However, those payments will be lower, amounting to about 80 percent of what beneficiaries normally would be entitled to collect in 2035 and continuing to decline slightly in ensuing decades, according to current projections. Averting those cuts will require congressional action to shore up the system’s finances.”
The most discussed options for increasing solvency for Social Security includes adjustments to the COLA Adjustments, Increasing the Retirement Age, Reducing spousal, divorcee, widow/widowers benefits, increasing taxes with no additional benefits and there has been some talk on investing Social Security reserves into Equites. These are all tough positions to take for government officials running for election.
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