WEBVTT 00:00:02.320 --> 00:00:38.150 I would encourage you to evaluate your total income plan, your total asset makeup, to get the most that you can out of Social Security by lowering your overall tax bill and then ultimately saying, how can I increase my benefits, therefore my CODAs will be applied to a larger dollar amount for the rest of my life? Welcome to Retirement Answers, a podcast built to answer your most pressing retirement questions. If If you're someone who's either thinking about retirement or already in retirement, well, you're in the right place. Hey there. My name is Jacob Duke, and each week, I'll be walking through different tips and strategies to help you succeed in retirement. 00:00:38.150 --> 00:01:05.980 So let's go ahead and get started with today's show. Hey everyone, and welcome back to another episode of Retirement Answers. As always, my name is Jacob Duke. I'm a certified financial planner and I help people just like you retire all the time. The purpose of this podcast is to share different retirement tips and strategies with you so that you can have a successful retirement and go enjoy it and be less anxious or worried about your money. 00:01:05.980 --> 00:01:42.645 So by the title of today's episode, you can obviously see that we're gonna be talking about the new Social Security cost of living adjustment that's gonna be taking place here in 2024. But before we jump into that, I wanted to say thank you so much for all of you who are continuing to listen and just continue to support the show. It means so much. And, if you're finding value in the show, I encourage you to go give a rating and review there on the podcast platform that you're listening through, whether that's Apple Podcasts or Spotify. That helps me so much just know that, you know, I'm putting out good content, answering questions that are helpful to you, but then also it helps other listeners find the show so they can learn from these same tips and strategies. 00:01:42.645 --> 00:02:34.645 So before we jump into what the cost of living adjustment is for 2024, I wanna answer one of the big questions that I get a lot around this, and a lot of people have questions or concerns around who actually gets the COLA. You know, do I have to be taking my benefits or receiving my benefits already in order to get that? And I wanted to answer that really quickly because there's a lot of confusion there around it, and I've seen mistakes made when it comes to this. So the answer to that question of do I need to be receiving my benefits in order to get that cost of living adjustment is no, you do not have to be receiving your benefits in order to get the cost of living adjustment, but you do need to be age 62 by the end of the year in which you're asking about which cost of living adjustment it actually applies for. So that's something to remember and think about, because I think last year I had a client of mine asking, Hey, do I need to be receiving my benefits? 00:02:34.645 --> 00:03:02.500 I think I'm gonna go ahead and take them so I can get this big 8.7% cost saving adjustment. I said, wait, don't do that yet because you're still gonna get the 8.7% adjustment even if you're not already receiving your benefits. So don't let a cost of adjustment blow up your plans to delay if you do plan on delaying your social security benefits. So that's the first thing I wanted to answer for you today is, is, you know, you don't have to be receiving your benefits in order to get those COLAs each year. You just have to be 62 or older to get those. 00:03:03.395 --> 00:03:32.570 Okay, so we are about to jump into what that cost of adjustment is for 2024. And then also be sure to kind of listen all the way to the end, because I'm gonna be sharing some ideas around why this increase may not be what you're truly getting after we factor in a few other things that are important to consider. So without further ado, what is the 2024 COLA for Social Security? It is, drum roll please, 3.2%. And right away, you're probably thinking, man, Jacob, that is not as high as I was hoping. 00:03:32.570 --> 00:03:57.000 And I'm kind of with you, right? It's maybe they're saying that inflation is going down, but it just doesn't feel like it, right? Things at the grocery store, gas, real estate, everything continues to rise in cost or price, and we're still feeling the pressure of that. So that's what the COLA is going to be for 2024, and that'll be begin and be applied in January 2024 on your first check-in January. So 3.2% is what it is. 00:03:57.000 --> 00:04:44.980 Now, one thing I did want to do is kind of compare this to what the COLAs have been throughout history, both recently and also, I guess on average since 1975, back when cost of living adjustments, were instituted for social security benefits. So obviously last year was one of the highest years we've seen in a while being 8.7%, increase for cost of adjustment last year and the year before it was 5.9. But throughout history, how does this year's 3.2 adjustment compare to historical averages? Well, the historical average since 1975 is 3.77%, and that's pretty much right in line with the average inflation amount, you know, year over year over longer periods of time. So obviously back in the seventies, eighties, you're gonna have really high inflationary, periods of time. 00:04:44.980 --> 00:05:15.980 And more recently we've had some high inflation as well. But in the middle, there was a lot lower inflation, you know, through the, through the late nineties, February, and obviously with 08/09, the whole crash there, your cost of living adjustment was zero for a couple of years. So don't necessarily think that a high cost of living adjustment or a low COLA is good or bad. It's really just a thing that's supposed to offset any inflationary environment that's going on around us. And so I don't know about you, but back in the eighties, obviously, you know, colas were really high, you know, in 1980 was 14.3%. 00:05:16.060 --> 00:05:35.725 That's because inflation was so high then too. And so just because you're getting a high coal does not mean that's a good or a bad thing. It's just part of it. And honestly, if I'm getting a really high COLA, that means probably something else is going wrong out there in the environment around us. And that's probably not a very comforting thing for you as someone who's in retirement, trying to live off of your different income sources. 00:05:35.725 --> 00:06:09.530 So don't necessarily assume that a good or bad COLA is either high or low. It's just a part of the inflation adjustment that you're gonna receive each year for social security. Now, are a few different things that we have to think about whenever we think about the effective COLA that we're getting, right? One of those things being Medicare Part B premiums, another one of those things being the taxation on your social security benefits as a whole. So let's talk through those two different things really quickly and kind of give you an example of how you might not be getting a full 3.2% benefit increase this year because of these two different things. 00:06:09.530 --> 00:06:49.010 So for example, the 2024 expected Medicare Part B premiums is expected to be $174.70 per month. And this is gonna be an increase of $9.80 compared to what you're paying right now in 2023 of $164.90 per month. So we're seeing a $9.80 per month increase from 2023 premiums for part B all the way up to 2024 premiums. So as a percentage, this is 5.94% increase on your Part B premiums from 2023 going to 2024. Now, remember, this is only Part B, so this does not include a Medicare Advantage plan if that has any cost to you. 00:06:49.455 --> 00:07:15.180 It does not include any Medigap increases or Part D premium increases. So those are other things that you can factor in as well. But just so you know too, the Part B deductible is also increasing from $226 per year to $240 per year. Obviously, deductible is not really a huge concern since it is so low, but just wanted you to know about that as well. Not something really to factor into any changes there since it is already a really low deductible. 00:07:15.420 --> 00:07:50.955 So right away, we can see that these premiums for health insurance are increasing at a greater rate compared to your Social Security income. So your Part B premiums, remember, they're going up by 5.94% and your benefits are only going up by 3.2%. So there's a disparity there. So let's kind of look in the example to see what your net COLA would be after we factor in that increase on the Medicare Part B premium. So let's assume that, as an example, let's say that you've got $2,000 a month is your Social Security benefit here in 2023, and this is gonna be your net Social Security benefit. 00:07:50.955 --> 00:08:11.070 So that 2,000 is already factoring in your, Medicare premiums every month that you're paying. So we're not gonna add that on top and then subtract it back out. We're just assuming that you're already subtracting that out. And, and then in 2024, it would be 3.2% more than that $2,000 a month. So that brings your new monthly benefit in 2024 to $2,064 per month. 00:08:11.070 --> 00:08:37.830 Now I know that COLAs are not applied exactly how I, how I just kind of explained it. It's not as simple necessarily as saying, what's my current monthly benefit? And then let's multiply it by the new increase and get the product of that. You can get a pretty close or approximate number if you do it that way. But technically the COLA is applied to your primary insurance amount or PIA for short, and then your benefit is recalculated based on when you took your benefits originally. 00:08:37.910 --> 00:09:18.775 So if you took your benefits before your full retirement age, they're gonna calculate your new PIA, including the COLA, and then they're gonna reduce that benefit based on when you took them earlier, how early you did take them. So that's far beyond the point or the scope of this discussion today. So we're gonna try to keep it really simple, just so you can get an accurate or close enough representation of what your benefits would be after we factor in those Medicare Part B premiums. So that's a little bit of sidebar, but I just wanted to make sure that you knew that you can't just simply take your COLA and then take your current benefits and just add those two things together to get your new monthly benefit. It won't be exactly right, but it will be close enough to kind of give you a ballpark estimate of what your new benefits in 2024 would be. 00:09:18.775 --> 00:10:11.020 So let's go back to our example of $2,000 a month going up to $2,064 a month, but whenever we factor in that Part B premium increase of $9.80 per month, your new benefit after we subtract out that increase in the Part B premium, your new benefit would go from $2,064 a month in 2024, it would go back down to $2,054.20. So it's a $9.80 decrease from what your your COLA would increase it to. So after we subtract out that part b premium increase, we can find out what your effective COLA is gonna be. And we do that by just taking the $54.20, which is the amount above 2,000 that you're receiving right now in 2023. And we divide that by the 2,000 you're receiving, which gives us a percentage of 2.71%, and that would be your effective COLA that you're receiving here in 2024 when you consider Medicare Part B increases. 00:10:11.020 --> 00:10:57.020 So we thought we were getting a 3.2% COLA, but now we're really only getting a 2.71% because we had to factor in those Part B premium increases. Also something to think about here is the taxation on your social security benefits Because every year we're getting COLAs or cost of adjustments there for your benefits, but something that is not going up with inflation or what we would call inflation adjusted is your combined income or provisional income brackets that's used to calculate how much of your social security is taxable. So those combined income brackets, they're not inflating over time with inflation. They're staying exactly how they are until we change that in legislation. I hope that would happen soon because at some point everybody's income from Social Security is going to be taxable. 00:10:57.020 --> 00:11:31.600 So just as a refresher, I've got episodes on this previously when I talk about Social Security taxation, you can go back and listen to those, but just kind of really quickly, what are those combined income brackets? Well, if you're single or filing as an individual, then it would be 0 to 25,000, 25,000 to 34,000, 34,000 and above. And the difference there is the first 25,000, 0% of your social security is taxable. If you fall within that range for your combined income, if you're from 25,000 to 34,000, 50% of your social security would be taxable. Anything above 34,000, it would be 85% of it would be taxable. 00:11:31.600 --> 00:12:02.820 Now that's for individual, for couples or married filing jointly, it's zero to 32,000, 32 to 44, and then anything above 44, and it follows those same 5085% taxability brackets. So that's a refresher on that. Now, like I said, those brackets are not increasing year over year. So they've stayed at 25 to thirty four and thirty two to 44, they've stayed the same and have never increased. So if you think about it, whenever we have these cost of living adjustments for your social security income, your income is gonna be going up. 00:12:03.395 --> 00:12:41.225 But if the brackets that are used to figure out how much of your social security is taxable are not going up, that means you're gonna keep increasing your income and the brackets are gonna stay the same. Therefore, you're gonna get taxed on a higher amount of your social security. And as it stands still today, even if you have the absolute highest possible benefit for Social Security as an individual or as a couple combined, you still if your if your only source of income is Social Security, you're not gonna pay any taxes on any of that. Right? As soon as you add other dollars into the mix or other income into the mix, you could have a portion of your social security taxable, depending on how much other income you do have. 00:12:41.545 --> 00:13:21.820 So whenever we think about that, more and more people are gonna be pushed into higher tax brackets because of their social security increasing and these combined income brackets are not increasing. So in my opinion, something is going to have to change here because I think on average right now about 50% of all social security benefits received are taxable as income. So that percentage at 50% is where is that right now? That percentage likely will be increasing over the years until something is changed here within legislation around the combined income brackets and how social security taxation works in general. So something to be on the lookout for, just check out every year to see if your Social Security benefits are becoming more and more taxable. 00:13:21.820 --> 00:13:49.870 That's something to pay attention to. And this is just another way that you're probably gonna get net less benefit increases over time because number one, like I mentioned, your Part B premiums or your Medigap premiums or Part D, all those are gonna be increasing over time as well, cutting into your cost of living adjustments, but then also the taxation on your social security could be cutting into those cost of living adjustments as well. So net to you, you're probably not getting quite the the increase that you were hoping for. So that's why I preach on all these other different strategies. Right? 00:13:49.950 --> 00:14:11.675 Number one, whenever you take your benefits originally in the first place, that continues to impact you for the rest of your life. Right? Because if you think about it, if we're gonna be penalized because we took it early, that's gonna affect how much our COLA is gonna benefit us every year in the future. Right? Because if you think about it, you've got a a 5% COLA on $2,000 and a 5% COLA on $1,000. 00:14:11.675 --> 00:15:00.015 Well, the $2,000 benefit is gonna get a higher dollar amount to COLA than the $1,000 benefit because it's all percentage based. So the higher your benefit is when you originally take your Social Security benefits, that's going to continue to help you in the future whenever future COLAs are applied. Also too, whenever we think about our sources of income and goes back to tax diversification and having different sources of income from a taxability standpoint to pull from to lower how much of your social security will be taxable. So having money in that tax deferred account, that tax free account, like a Roth and also brokerage or a taxable investment account money, having those different sources of tax buckets to pull from is gonna be important to you keeping your taxation on social security as low as possible, right? Because those combined income brackets, like I mentioned, they are staying the same. 00:15:00.015 --> 00:15:42.300 They're not increasing over time, which means your social security will become more taxable in the future unless some sort of legislation is changed. So these are just some of the things that you need to consider and remember whenever you're thinking about your cost saving adjustments, and if you're excited or not excited about this year's COLA being 3.2%, it goes, there's more to it than just having a COLA every year. You have to think about your other sources of income. You gotta think about when you originally take Social Security, if it's worth it to take it early and then also be negatively impacted the rest of your life by having a lower COLA in dollar terms than if you had delayed it till full retirement age or even beyond. Remember that you do not have to be taking your benefits in order to get the COLA, you simply have to be age 62 by the end of the year that this COLA was announced. 00:15:42.300 --> 00:16:20.340 So if you're 62 by the end of 2023, that means in 2024, your benefits will be adjusted by that 3.2%, even if you're not yet receiving those benefits. So I hope this conversation for Social Security Colos is helpful and gives you some different ideas and things to think about. It's not all bad news, definitely not all bad news, but I would encourage you to evaluate your total income plan, your total asset makeup to get the most that you can out of Social Security by lowering your overall tax bill, and then ultimately saying, hey, how can I increase my benefits? Therefore, my COLAs will be applied to a larger dollar amount for the rest of my life. So thank you so much for tuning into this week's episode of Retirement Answers. 00:16:20.340 --> 00:16:46.800 As always, if you have a question, feel free to reach out, shoot me an email at jacobretirementanswers dot net. Also remember to leave a rating or review there on your podcast platform you listen through. Other than that, thank you so much for being here, and I look forward to talking with you again next week. Hey, it's Jacob again, and I wanted to extend a quick offer to you. If you have a question and you would like to have it answered here on the show, please email me at jacobretirementanswers dot net. 00:16:46.880 --> 00:17:03.025 And I'd love to answer that question for you right here on the show. Also, wanted to remind you that nothing discussed in today's episode is meant to be financial, legal or tax advice. Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode. I look forward to talking with you again next week.