The recent spurt in inflation is an important reminder that keeping pace with the cost of living is one very valuable feature of Social Security.
However, a new Issue Brief from the Center for Retirement Research at Boston College identifies factors that can undermine Social Security’s inflation protection and reduce net benefits.
The first is the Medicare premiums for Part B, which are deducted automatically from Social Security benefits. To the extent that premiums rise faster than the Cost of Living Adjustment (COLA), the net benefit will not keep pace with inflation. The second issue pertains to taxation under the personal income tax.
Because taxes are levied on Social Security benefits only for households with income above certain thresholds ($25,000 for single taxpayers and $32,000 for joint returns) and the thresholds are not adjusted for wage growth or inflation, rising benefit levels subject more benefits to taxation – again reducing the net benefit. To get more details, read the Issue Brief at https://bit.ly/3gbp7xN