Estimated read time: 5-6 minutes
Most people don't realize this but between you and your employer, you've been contributing as much as 12.4% of every paycheck to Social Security. These contributions date back to your first paycheck as a kid.
When you add up these contributions over several decades, it could be a massive amount of money.
That's why you want to be 100% certain you wring every nickel out of your benefits that are rightfully yours when you retire.
Because if you made an average income throughout your career, your Social Security benefits could add up to several hundred thousand dollars in lifetime income.
And if you made an above-average income, your benefits could be worth well over $1 million.
But there are two serious threats that could impact how much you receive in lifetime benefits…
Threat #1: Cuts to your Social Security benefits
If you're one of the 66 million Americans who receive Social Security benefits, you were probably ecstatic to learn that your 2023 cost of living increase will be 8.7%.
That sounds like great news on the surface. But unfortunately, it could be really bad news in the long run. Here's why:
It's no secret that Social Security has been on shaky ground for many years. The Social Security Trust Fund is grossly underfunded and is projected to run out of money by 2034.
This is disturbing news for anyone relying on Social Security now, or who is planning to file for their benefits in the near future.
Then in early 2020, the pandemic hit and unemployment shot up to 14.7%!
What does that have to do with Social Security? Well, 23 million people were suddenly out of jobs. So, 23 million people were no longer contributing to Social Security. And this puts an even bigger strain on the trust fund - making a bad problem even worse.
But it doesn't stop there.
The 2023 Social Security cost of living increase of 8.7% is the highest increase since 1981.
This means the already strained trust fund could be depleted even faster because even more money will be going out to cover this cost-of-living increase.
This should be a huge wake up call for everyone. If you're relying on Social Security to help pay for your expenses in retirement, the chances of your benefits being reduced are growing by the day.
What can you do about it?
If you're receiving Social Security benefits today, you want to create other sources of income in retirement - outside of social security - in case your benefits do get cut. You never want to be too reliant on any single source of income.
If you haven't filed for your Social Security benefits yet, this threat could completely change your claiming strategy as to when you file for your benefits. You can no longer rely on some traditional rule of thumb or one-size-fits-all strategy. There's too much money at stake.
2 The latest 8.7% cost of living increase could trigger higher taxes next year
Depending on your taxable retirement income, the 8.7% cost of living increase in 2023 could unknowingly push you into a higher tax bracket, forcing you to pay even more taxes.
Social Security benefits weren't taxed until 1984. When this taxation kicked in, the government set specific income thresholds. If you're single and make more than $25,000 (or $32,000 if you're married) per year, you'll owe taxes on 50% of your benefits.
If you're single and make more than $34,000 (or $44,000 if you're married) per year, you'll owe taxes on up to 85% of your benefits.
But here's the problem: Those income thresholds have never been adjusted for inflation. So as time goes on, the number of people who must pay taxes on their benefits will only increase.
And if your income is below either one of those taxable amounts, the increase in benefits could push you over that threshold. And the more you owe in taxes on your benefits, the less "net" dollars you'll have in Social Security income.
What can you do about it?
For many hard-working Americans, taxes play a huge role with their Social Security benefits.
It goes back to the old adage … It's not what you make. It's what you keep.
So don't just focus on the size of your benefits check. Consider how this decision could impact your taxes. Look at the big picture.
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Ryan Thacker and Tyson Thacker are the President and CEO of B.O.S.S. Retirement Solutions and Advisors with six offices along the Wasatch Front, one office in Treasure Valley and two offices in Washington state. They are the winner of Utah's Best of State Award for retirement planning for the past two years.
Advisory services offered through B.O.S.S. Retirement Advisors, an SEC Registered Investment Advisory firm. Insurance products and services offered through B.O.S.S. Retirement Solutions. The information contained in this material is given for informational purposes only, and no statement contained herein shall constitute tax, legal or investment advice. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual's situation. You should seek advice on legal and tax questions from an independent attorney or tax advisor. Our firm is not affiliated with the U.S. government or any governmental agency. BOSS submitted applications and paid application fees to be considered for the Inc. 5000 Fastest Growing Companies and Best of Utah State for Retirement Planning awards. The award results were independently determined by each organization's criteria and the information BOSS provided in the applications. BOSS received the Inc. 5000 award in 2016, 2017, 2018, and 2019. BOSS received the Utah Best of State award in 2019, 2020, 2021 and 2022.