• Largest Social Security Increase in Over 40 Years!

    Social Security is about to have its largest increase in 40 years. Since most older adults in the US rely on Social Security for over half their income, this adjustment will have a big impact on many Americans.

    Every year around August or September, the federal government starts evaluating what inflation has done to the cost of everyday items and how it affects Social Security. They weigh these numbers against the current payable Social Security benefits and apply a cost-of-living adjustment (COLA) to help offset inflation.

    We were excited by last year’s 5.9% increase, a pretty healthy number at the time, especially considering that years like 2015 and 2016 saw increases of 0% and 0.3%, respectively. We know inflation has grown much higher than Social Security has reflected in recent years, so it’s great to see the Feds helping us catch up.

    This Year’s Cost-of-Living Adjustment

    The COLA taking effect in December 2022 is 8.7%. We haven’t seen a cost-of-living adjustment above 7% since 1982, and COLAs were only enacted in 1975, so this is really saying something.

    An increase of 8.7% is undoubtedly impressive, but it’s still lower than various groups were projecting earlier in the year. For instance:

    • In July, Newsweek predicted a COLA of 11.4%.
    • In July, CNBC predicted 10.5%, which they decreased to 9.6% one month later.
    • In August, the American Association of Retired Persons (AARP) predicted 9%.


    We’ve all experienced this year’s incredibly high inflation firsthand, but a few things changed between the summertime predictions and the COLA announcement in October. For instance, gas prices rose to a national average of $5 per gallon in June but have since fallen to under $4 per gallon.

    Gas prices are a significant consideration when deciding the COLA because transportation is a big factor for the Consumer Price Index (CPI). Gas prices also roll over into other things like utilities, the costs of goods and services, and more.

    Consumer Price Index

    It’s important to understand that inflation is measured in a few different ways, depending on the age group in question. Typically, when we talk about inflation, we’re referring to the Consumer Price Index for Workers (CPI-W). This general index considers the price of clothes, transportation, medical care, housing, and other factors.

    Social Security involves a specific age group, which is where another measurement called the Consumer Price Index for the Elderly (CPI-E) comes in. This looks at price changes most likely to affect households with people over age 62.

    When comparing the different weights of various factors, you first notice that the cost of medical care and prescription drugs is weighted about twice as high for the CPI-E than the CPI-W. Next is housing, which tends to cost more for seniors because of assisted living and caregiving needs.

    Because of these differences, Social Security cost-of-living adjustments should be based on the Consumer Price Index for the Elderly. Otherwise, they don’t accurately reflect the changing prices that seniors experience. Even the increases we’ve seen in recent years, which have been relatively low prior to 2021, haven’t allowed seniors to keep up. After all, elderly people tend to be disproportionately affected by inflation compared to the general population.

    An article by The Senior Citizens League, a non-partisan advocacy group focused on seniors, recently weighed in on this matter, saying that since 2000, inflation has decreased the purchasing power of seniors by over 40%. So even though an 8.7% increase is a step in the right direction, we’ve got a long way to go before Social Security benefits catch up with inflation.

    Medicare Part B

    Medicare is another issue that plays significantly into the cost of living for seniors. Last year, Medicare Part B went up from $148 to $170 per month, or about a 14.5% increase, eating a large chunk out of the 5.9% cost-of-living adjustment.

    As the government formulated Part B costs for 2022, a new Alzheimer’s drug had just come out. This was anticipated to be extremely popular but also very expensive. In response, the government preemptively built the price into the cost of Part B.

    Now, a year later, it turns out the drug was not very popular and not that expensive. Fortunately, the government has recognized the overcharge and is actually lowering the cost of Part B in 2023 to $164.90. This decision makes this year’s 8.7% COLA that much more impactful.

    Learn More from Nelson Financial Planning

    If you’re wondering how to budget your income and expenses with the upcoming Social Security increase, turn to Nelson Financial Planning to learn more. Our Certified Financial Fiduciaries can help you change your life with a successful financial plan that provides peace of mind for the future.

    For more information, please contact us online or call our Winter Park, FL, office at 407-629-6477.

  • Big Medicare Updates Coming Soon?

    The Inflation Reduction Act, signed into law in August 2022, focuses on two primary things. The first is climate change, by virtue of several tax credits and incentives for businesses and consumers to redirect their funds to more energy-efficient options. The second involves making Medicare-related changes, and that’s the piece we’ll focus on here.

    The cost of healthcare continues to rise, and senior retirees bear the brunt of those increases. After all, age tends to bring more health problems demanding more prescriptions and hospital visits, all while living on a fixed retirement income.

    The Inflation Reduction Act intends to help people on Medicare who spend money out of pocket on medical costs, but many of the changes won’t come on board for several years. Here are the four main changes that could impact healthcare costs for retirees.

    1.     Negotiated Drug Prices

    The Act allows Medicare to haggle and negotiate drug prices under Part D. The problem is this ability isn’t as broad as most people think. In fact, it’s quite limited and really only impacts the most expensive drugs. It also has a very slow rollout, covering about 10 drugs starting in 2026. This goes up in 2027 to 15 drugs and increases again in 2029 to 20 drugs.

    While these changes are still a ways off, some estimates project that negotiated drug prices will save about $100 billion. This is supposed to trickle down to seniors as lower Part D premiums, but we’re skeptical about that.

    2.     Capped Out-of-Pocket Drug Costs

    The Inflation Reduction Act caps annual out-of-pocket drug costs at $2,000 for people on Medicare Part D. About 1.4 million seniors spend more than that, so this change certainly benefits them. The problem is the cap doesn’t take effect until 2025.

    3.     Limit on Insulin Prices

    If you purchase insulin, you know the price has been skyrocketing. US residents pay about 10 times more for insulin than people in other developed countries. The Inflation Reduction Act takes direct aim at this by stipulating that Medicare users will pay a maximum of $35 per month out of pocket for insulin. The good news about this feature is that it kicks in as early as January 2023.

    4.     Free Vaccines

    All vaccines for people on Medicare are free starting in 2023. Of course, the flu and COVID-19 vaccines are already free, but things like the shingles shot aren’t. The idea is to make all vaccines a free part of preventative healthcare for seniors.

    Only time will tell what the ripple effects of the Inflation Reduction Act will be. After all, there’s no such thing as a free lunch.

    Tax Changes in 2022

    In the past three years, we’ve had tons of new tax changes, tax credits, and stimulus checks to juggle. What are some of the tax changes in 2022?

    • Tax income bracket increase: This is a change we expect every year. In 2022, tax brackets are increasing by 3 to 3.8 percent across the board.
    • Child Tax Credit: In 2021, families received a tax credit of $3,600 per dependent child under age 17. For 2022, this is dropping back to the regular $2,000.
    • Dependent Care Qualified Expenses: Income-eligible families can deduct up to 35 percent of the cost to send kids under 13 to daycare, babysitters, after-school programs, and summer camps. In 2021, the limit was $8,000 for one child and $16,000 for two or more children. This year, it’s dropping back to the regular rate of $3,000 for one child and $6,000 for two or more children.
    • PMI deductions: Itemized tax deductions for private mortgage insurance (PMI) premiums were set to expire in 2020, but the Consolidated Appropriations Act extended this through 2021. Congress has now extended this to 2022, allowing you to deduct PMI premiums as part of the mortgage interest itemized deduction.
    • Charitable giving deduction: Contributions to charity have always been itemized deductions. However, in 2021, individuals taking the standard deduction could claim an additional $300, and married couples could claim $600 for gifts to charity. This has gone away for 2022, meaning you must itemize your deductions to get any tax benefits for your charitable contributions.
    • Increase in virtual currency transactions reported: Currently, many cryptocurrency transactions do not generate official tax forms. But in 2023, the IRS will begin sending out these documents, similar to the way they track stock transactions. In preparation for this, many companies have started issuing documentation this year to work out the kinks on their end.
    • Enhanced business meal deductions: Write-offs for business meals have been in place for years. The rate used to be 50 percent, but for 2021 and 2022, the enhanced deduction allows you to claim 100 percent of business-related food and beverage purchases from restaurants.
    • Form 1099-K: This tax form is issued for any reportable credit or debit card transactions or third-party network transactions for goods and services. Examples include selling things on Etsy, eBay, or Amazon or accepting payments through networks like PayPal or Venmo. In the past, 1099-Ks were issued for $20,000 or more in gross sales. For 2022, this is dropping down to $600.
    • Business mileage: The standard mileage rate for business travel was 58.5 cents per mile at the start of 2022, which increased to 62.5 cents for the final six months of the year. Similarly, medical mileage started at 18 cents per mile but increased to 22 cents for the latter half of the year. Charitable mileage for volunteering remains unchanged at 14 cents per mile.
    • Retirement plan contribution limits: The limit for 401k plans is going up by $1,000 to $20,500. The catch-up limit for contributors over age 50 is $6,500. Traditional and Roth IRAs are staying at $6,000 per individual, with a $1,000 catch-up for contributors over 50. SIMPLE IRA plans got a little bump to $14,000 per year, with an additional $3,000 if you’re over 50.

    Contact Nelson Financial Planning

    If you’re wondering how upcoming Medicare and tax changes could affect you, turn to Nelson Financial Planning to learn more. Our Certified Financial Fiduciaries would be happy to help you build a successful financial plan that provides peace of mind for the future.

    For more information, please contact us online or call our Winter Park, FL, office at 407-629-6477.

  • The Most Common Regrets About Retirement

    Interest Rates vs. Inflation

    The battle between interest rates and inflation is far from over. If the government continues raising interest rates to keep inflation in check, the resulting high rates will keep dragging down the economy. Continue reading “The Most Common Regrets About Retirement”

  • The Four Basic Parts of Creating an Investment Portfolio

    Do you know what kind of investor you are? How do you plan to reach retirement with enough money to live the lifestyle you want? Today, Nelson Financial Planning will review the four basic parts of creating a successful investment portfolio. It’s a full-circle conversation that will take you from your early days of investing to your later years in retirement. Continue reading “The Four Basic Parts of Creating an Investment Portfolio”

  • How Important are New ESG Funds?

    The government makes changes to retirement plans every year. In 2022, we’re seeing a big push toward annuities within 401K platforms. Continue reading “How Important are New ESG Funds?”

  • Are We Halfway Through a Recession?

    Stagflation—what is it? Is it coming? Is it already here? How can we fight it? Continue reading “Are We Halfway Through a Recession?”

  • How COVID Impacted the IRS and Your Taxes!

    Thanks to the COVID-19 pandemic, this was the first time in three years that we had to meet a mid-April deadline to file our taxes. Continue reading “How COVID Impacted the IRS and Your Taxes!”

  • Is it Too Late to Refinance?

    What a Difference Slight Mortgage Rate Changes Can Make!

    The average single-family home in America appreciated nearly 55 percent over the past five years ending December 31, 2021. Continue reading “Is it Too Late to Refinance?”

  • Inflation is Coming! – Ways You Can Plan for Increased Prices

    These days, inflation stares you in the face every time you fill the gas tank or go to the grocery store. Continue reading “Inflation is Coming! – Ways You Can Plan for Increased Prices”

  • 401K Changes in 2022

    401K Changes in 2022

    Retirement plans change every year. Here’s how three major changes and one potential change are affecting 401K platforms in 2022. Continue reading “401K Changes in 2022”