THINKING RETIREMENT – ANDY LANDISThe Social Security Administration recently announced 1.7% payment raises effective January 2013.  The raise has profound effects on you if you are retired, working, and/or an investor.  Here’s a roundup of how the changes will affect you.

If you are retired

If you are retired and getting Social Security, expect a 1.7% raise in your January payment, and a letter in December giving your new payment amount.

The raise is officially a “COLA” (Cost Of Living Adjustment), and is tied to the inflation rate in the twelve months ending September 30.

If your Social Security payment is low, you might worry that your Medicare premium will increase more than your Social Security raise, giving you a net loss.  Don’t worry; current “hold harmless” legislation prevents your Medicare premium from rising more than your Social Security payment, so you should at least “break even.”

However, your Social Security could still go down if you have other insurance premiums withheld from your Social Security, such as a Medicare Part C “Medicare Advantage” plan or a Part D prescription drug plan.

Speaking of insurance costs, Part C and Part D plans will cost the same, on average, next year as 2012.

If your Social Security payment is higher, the COLA should more than cover increases in your Medicare and supplemental insurance, at least by a bit.

By the way, this is a stark reminder that the COLA, based on the Consumer Price Index, may not accurately reflect the cost of living for older Americans.  Seniors use medical services more than average, and those costs go up faster than general inflation.

If you are working

Watch for these changes in your paycheck in 2013:

  • You enjoyed a 2% reduction in your FICA taxes in 2011 and 2012.  That provision ends December 31.  Expect your FICA tax bill to increase by 2 percentage points, reducing your pay checks effective January.
  • If you are a higher earner, the Social Security taxable earnings ceiling rises from $110,100 in 2012 to $113,700 in 2013. If you earn more than $110,100, you will join 10 million other high earners and pay more FICA taxes starting in January.
  • If you have yet higher earnings, expect a new Medicare tax of 0.9% on work earnings over $200,000 for individuals and $250,000 for couples.

Investors: A surprise Medicare tax

High-income investors may have another 2013 surprise: a new 3.8% Medicare tax on unearned income including interest, dividends, capital gains, and more.  The tax will apply to net investment income for taxpayers with adjusted gross income (AGI) over $200,000 for individuals and $250,000 for couples.

The bottom line is that as a retiree, worker, or investor, you should understand and prepare for the changes coming in 2013

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