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Most people don’t realize this, but between you and your employer, you contribute up to 12.4% of each paycheck to Social Security. These contributions go back to your first salary as a child.
When you add up these contributions over several decades, it could add up to a huge amount of money.
That’s why you want to be 100% certain that you’ll get every penny of your rightful benefits when you retire.
Because if you’ve earned an average income throughout your career, your Social Security benefits could be several hundred thousand dollars in lifetime income.
And if you earned an above-average income, your benefits could be worth well over a million dollars.
But there are two serious threats that could impact how much you receive in lifetime retirement 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 thrilled to learn that your cost of living increase in 2023 will be 8.7%.
This seems like great news at first glance. But unfortunately, this could be very 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 expected to run out of money by 2034.
This is worrying news for anyone currently relying on Social Security or planning to file for benefits in the near future.
Then in early 2020, the pandemic hit and unemployment soared to 14.7%!
What does this have to do with social security? Well, 23 million people suddenly found themselves out of a job. Thus, 23 million people no longer contributed to Social Security. And that puts even more pressure on the trust fund, further compounding a bad problem.
But it does not stop there.
The 8.7% increase in the Social Security cost of living in 2023 is the largest since 1981.
This means that the already stretched trust fund could run out even faster, as even more money will be spent to cover this increased cost of living.
This should be a huge wake-up call for everyone. If you’re relying on Social Security to help pay for your retirement expenses, the chances of your benefits being cut increase day by day.
What can you do there?
If you’re receiving Social Security benefits today, you want to create other sources of retirement income — outside of Social Security — in case your benefits are reduced. You never want to be too dependent on one source of income.
If you haven’t yet filed for Social Security benefits, this threat could completely change your claims strategy as to when to apply for your benefits. You can no longer rely on a traditional rule of thumb or a one-size-fits-all strategy. There is too much money at stake.
2 The latest 8.7% increase in the cost of living could lead to higher taxes next year
Depending on your taxable income in retirement, the 8.7% increase in the cost of living in 2023 could unknowingly push you into a higher tax bracket, forcing you to pay even more taxes.
Social security benefits were not taxed until 1984. When this taxation came into effect, the government set specific income thresholds. If you are single and earn more than $25,000 (or $32,000 if married) per year, you will have to pay 50% of your benefits in taxes.
If you are single and earn more than $34,000 (or $44,000 if married) per year, you will have to pay up to 85% of your benefits.
But here’s the thing: These income thresholds have never been adjusted for inflation. So over time, the number of people who have to pay taxes on their benefits will only increase.
And if your income is less than either of these taxable amounts, the increase in benefits could push you over that threshold. And the more taxes you owe on your benefits, the fewer “net” dollars you’ll have in Social Security income.
What can you do there?
For many hard-working Americans, taxes play a huge role along with their Social Security benefits.
It goes back to the old adage… It’s not what you do. It’s what you keep.
So don’t just focus on the amount of your benefit check. Think about the impact this decision could have on your taxes. Look at the big picture.
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Ryan Thacker and Tyson Thacker are the President and CEO of BOSS Retirement Solutions and Advisors with six offices along the Wasatch Front, one office in Treasure Valley and two offices in Washington State. They have won Utah’s Best of State Award for retirement planning for the past two years.
Advisory services offered by BOSS Retirement Advisors, an SEC-registered investment advisory firm. Insurance products and services offered by BOSS Retirement Solutions. The information contained herein is provided for informational purposes only and no statement contained herein constitutes 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 matters from an independent lawyer or tax advisor. Our firm is not affiliated with the US government or any government agency. BOSS submitted applications and paid an application fee to be considered for the Inc. 5000 fastest growing companies and Utah State’s Best for Retirement Planning price. Award results were independently determined by each organization’s criteria and information provided by BOSS in the nominations. 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.