2022 has been a tough year for many seniors, but the outlook for 2023 shows some potential “silver linings”.
This year, steadily rising prices, the war in Ukraine, a rocky stock market and concerns about job security have caused many older Americans who thought they had nothing to fear financially to question their long-term financial security.
But in all of these grim and doomsday scenarios, there are some nuggets of good news on the horizon, especially for those who are having a little more trouble making ends meet. Let’s take a closer look at four of these “positive” situations.
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1. Social Security payments will rise by the highest amount in decades.
If you’re relying on Social Security for a good chunk of your retirement income, you’re about to take a breather. Indeed, the annual cost of living adjustment (COLA) of social security 8.7% increase in 2023. This is the largest increase since 1981.
Of course, there is a reason for this dramatic increase: inflation. As prices for everything from fuel to produce to building materials rise at rates not seen since the early 1980s, COLA is designed to help preserve the purchasing power of Social Security payments. .
And if prices start falling next year, seniors will benefit even more, because their social security checks will stay the same no matter how the economy plays out, until they’re up again. adjusted in October 2023.
2. Health insurance premiums will drop next year.
Since Health insurance premiums are usually deducted from Social Security checks, an increase in premiums can dilute the benefit of a COLA.
This is exactly what happened in 2022. Many seniors initially rejoiced when COLA increased by 5.9%. But their joy was dampened when they found out their Medicare Part B premiums would go up from $148.50 to $170.10 per month, a significant jump. By comparison, premiums only increased by $3.90 from 2020 to 2021.
The main reason for this dramatic increase was Medicare’s decision to fully cover the $56,000 annual cost for Aduhelm, a controversial drug (opens in a new tab) used to treat Alzheimer’s disease.
Initially, Medicare agreed to cover these costs for all subscribers. But doubts about the drug’s effectiveness allowed Medicare to change its policy to only cover costs for a very small group of patients going through clinical trials. A decrease in acute care treatments related to COVID-19 has also helped lower Medicare costs this year.
These developments did not force the Medicare administration to cut premiums mid-year. Instead, they decided to pass these cost savings on to subscribers when new premiums were announced in September 2022.
For those with adjusted adjusted gross income of $97,000 or less as sole filers ($194,000 as joint filers), the monthly Part B premiums will be $164.90, a decrease of more than $5 per month.
For seniors, this combination of higher Social Security payments and lower Medicare premium payments is very good news, especially if they are generally in good health and do not require extensive medical treatment. or expensive prescription drugs.
3. RMDs will potentially be lower in 2023.
Many retirees have seen the value of their retirement assets drop by 20% or more this year. Although this has forced many people to adjust their consumption habits, it may actually translate into a benefit for retirees: a decrease Required Minimum Distributions (RMD) Next year.
Why?
Because the RMD amounts for the new year are based on the value of retirement account assets on the last day of the previous year.
In other words, your RMD for 2023 will be based on the value of your traditional IRA and 401(k) accounts before taxes as of December 31, 2022.
That process worked against retirees this year, as 2022 RMDs were based on account values on the last day of 2021, when the stock market was at its peak.
We all know what happened next.
Unfortunately, RMDs cannot be adjusted downward when bear markets occur. Thus, many retirees were faced with the double whammy of having to take RMDs that no longer reflected the true value of their savings. And they had to pay taxes on these distributions while also paying record prices at the supermarket and at the gas pump.
Now, while the market may recoup all of its losses by the end of the year, few people bet on this outcome. While this is certainly not good news if you are trying to preserve or increase the value of your nest egg, you can at least take some comfort in knowing that your 2023 RMD amount might be lower than it was. in 2022.
4. Retirement account contribution limits are increasing significantly.
If you’re still working and want to maximize contributions to your workplace pension plan, there’s more good news. Next year, the limit for annual employee contributions to 401(k), 403(b) and most 457 plans will increase to $22,500, up from $20,500 in 2022, plus up to $7,500 additional catch-up contributions for those aged 50 and over.
If you’re still contributing to an IRA, the annual contribution limit will increase from $6,000 in 2022 to $6,500 in 2023, plus an additional $1,000 in annual catch-up contributions if you’re over age 50.
Understand everything
All of these “upsides” won’t do much good if they somehow mess up your financial plan for retirement. That’s why you may want to seek the services of a financial advisor to help you make the most of these opportunities.