Planning Around Social Security Cost of Living Adjustment for 2024 by Joanie B. Stein, CPA
Posted on February 13, 2024
by
Joanie Stein
Recipients of Social Security and Supplemental Security Income (SSI) will see a 3.2 percent cost-of-living adjustment (COLA) to the benefits they receive in 2024. The increase, which translates to an additional $50 per month for senior citizens, widows and persons with disabilities and special needs, pales in comparison to the 8.7 percent bump in benefits they received in 2023 and 5.9 percent the prior year.
The Social Security Act ties the annual COLA to the Consumer Price Index (CPI), a critical measure of inflation that has run persistently high in recent years. Yet, many would argue that the CPI fails to account for the rising costs of healthcare and living expenses individuals must contend with as they age and is, therefore, an insufficient gauge for assessing one’s financial needs in retirement. Instead, individuals at all income levels with and without special needs should rely on other estate planning strategies to ensure they and their loved ones afford the care they need and deserve throughout their lives.
For example, allocating savings to tax-advantaged 401(k) plans, individual retirement accounts (IRA) and insurance policies can help to fund your golden years and provide additional financial benefits to surviving family members long after you are gone. The use of trusts is another option to protect assets from creditors and help to ensure a smooth transfer of ownership during your life or at death. When family members or loved ones have physical or mental disabilities or chronic illnesses that impede their ability to care for themselves, a special needs trust should be considered to finance those individuals’ quality of care without jeopardizing their rights to receive government benefits. Under these circumstances, the trust assets and the income they generate are not considered to be owned by the beneficiaries.
Another important consideration for recipients of Social Security retirement, survivor and disability benefits is federal income tax. Generally, Social Security benefits are subject to tax when your combined income, including earnings, certain retirement plan withdrawals, investment income, non-taxable interest and half of your Social Security benefits, exceed $25,000, or $32,000 if you are married and filing joint tax returns. The good news is that there are some planning opportunities to help you shift income and minimize your tax burden in retirement. For example, you may donate up to $100,000 of a required minimum distribution from your retirement account directly to a qualified charity, removing that amount from your taxable income for the year. Or, you may convert a pretax 401(k) or traditional IRA into a Roth IRA, which will require you to pay tax at the time of the conversion in return for tax-free withdrawals in retirement.
Social Security benefits need not be an unwelcome surprise to retirees. Take the time to meet with your accountant and other trusted advisors to implement strategies that work best for your unique needs and circumstances.
About the Author: Joanie B. Stein, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where she works with individuals and closely held businesses to implement sound strategies intended to preserve wealth and improve tax efficiency. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or at info@bpbcpa.com.
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