👴👵 Big Changes Affecting Retirement Savers (AARP Title)

[APassionateLife]

👉  Any comments? 🤔

👉  January 04, 2023 By Andy Markowitz, AARP.

📋 Tax changes, RMD rules, Social Security COLA and more will affect older Americans’ finance.

👉  LINK TO ONLINE AARP ARTICLE 

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[APassionateLife]

📋  from the article!

(7) Social Security earnings test. Some retirees are only semiretired. If you claim retirement benefits before reaching FRA and continue working, your benefits may be temporarily reduced if your annual working income exceeds a set limit.

For 2023, that limit increases from $19,560 to $21,240 for beneficiaries who will not reach FRA until a future year. Social Security withholds $1 in benefits for every $2 in earnings above the cap.

If you will reach FRA this year, the income threshold is higher ($56,520, compared to $51,960 in 2022) and the withholding lower ($1 less in benefits for every $3 above the limit). The withholding ends in the month you hit full retirement age, and Social Security recalculates your benefit amount to make up for the prior reductions.

[APassionateLife]

📋  from the article!

(6) Full retirement age. Congress voted in 1983 to raise the Social Security full retirement age (FRA) from 65 to 67 but opted to do so gradually — very gradually. Forty years on, the change is nearly complete, with FRA reaching 66 years and 6 months in mid-2023.

For the past few years, FRA — the age when you become eligible to claim 100 percent of the retirement benefit calculated from your lifetime earnings — has been going up two months at a time, based on year of birth.

For people born in 1956, FRA is 66 hears and 4 months. If you were born from September through December 1956, you will hit the milestone by the end of April this year. For those born in 1957, it’s 66 and 6 months; the first of that cohort will become eligible to claim their full retirement benefit midway through the year. FRA settles at 67 for people born in 1960 or later.

You can start collecting retirement benefits before FRA — the minimum age is 62 — but your monthly payment will be permanently reduced, by as much as 30 percent. You can also wait past FRA and be rewarded with a benefit increase: an extra 8 percent a year until age 70.

[APassionateLife]

📋  from the article!

(5) Standard deduction. Most taxpayers take the standard deduction rather than itemizing on their tax returns. Married couples in that majority can take $25,900 off their taxable income for 2022, up from $25,100 the year before. For individual taxpayers, the standard deduction increases from $12,550 to $12,950.

You get a bigger standard deduction if you or your spouse is 65 or older: $1,750 more for a single filer and $2,800 for a couple filing jointly, up from $1,700 and $2,700, respectively, in the 2021 tax year.

[APassionateLife]

📋 from the article!

(4) Medicare costs. After a record-breaking leap in 2022, standard premiums for Medicare Part B come down a bit in 2023, from $170.10 to $164.90 per month. The decline is largely due to lower-than-expected costs for Aduhelm, a new Alzheimer’s drug that Medicare had initially projected would cost far more to cover.

Most Medicare enrollees have their premium payments for Part B, the portion of original Medicare that covers doctor visits and other outpatient treatment, deducted directly from their Social Security payments. For this group, the average net benefit — Social Security minus the Part B premium — increases from about $1,511 in December 2022 to $1,662 in January 2023.

The annual deductible for Part B is also declining, from $233 to $226.

Medicare enrollees who have Medicare Advantage (MA) coverage or Medicare Part D prescription drug plans may also pay slightly less in 2023. These plans are provided by private insurers so costs vary, but Medicare estimates that the average premium for an MA plan will drop from $19.52 to $18 and Part D plans will cost an average of $31.50 a month, down from last year’s $32.08.

[APassionateLife]

📝 from the article!

(3) Retirement plan distributions. One of the few Secure 2.0 changes taking effect this year involves required minimum distributions (RMDs) from retirement accounts. The new law bumps up the minimum age for starting those mandatory withdrawals from 72 to 73. (It will ultimately go up to 75, but not until 2033).

[fffred]

I also am one of the "70.5 kids", although the temporary (?) pandemic rule from a couple years ago put that off until 72 just before I would have been subject to the rule. So I haven't taken RMDs yet and think now I am not subject until I'm 72...two more years. Based on cash flow I could probably wait until then to draw those funds but I will probably begin drawing cash from the IRA accounts this year, even before withdrawals are required, pretty much according to my long term plan.

But another reason to draw now is for tax purposes: the period of the number of years over which the RMDs are now distributed will be slightly fewer than previously...because while the start age is increased the end age (expected longevity) is not going to change (at least not by Federal rules mandate). So the RMD taken each year will be slightly greater than before and this can theoretically and possibly push one into the next higher income tax bracket. That's never a fun thing.

I have a large spreadsheet showing my annual expected income and expenses for each year into the foreseeable future (I have tweaked this to be able to change my age at death and then see the effect this has on my survivor's circumstances; very interesting). With this I can try to adjust income so as to minimize income taxes across the years. I am not a guy with fancy investments that can be tweaked to do this, most everything is sort of a foregone conclusion... there are RMDs from IRAs (and possibly elective distributions should they be wanted for some reason), Social Security, a small private pension, and other minor income from interest and dividends; so there's not much that I can do to rejuggle the income...other than to begin drawing on IRAs to "load level" the tax load.

I did make a few mistakes. I had a large amount of savings in taxable accounts. I ran those down to essentially zero before drawing on the IRAs (which I have not started yet). I probably should have been drawing on the IRAs since I stopped working; this would have kept the taxable accounts ready for any needs without having to worry over income tax on IRA withdrawals, as well as better balanced those income tax marginal rates. But "life got in the way" and I found myself moving to Canada with a number of expenses that weren't planned for years before. 

Anyway, my recommendation to others in the accumulation phase is do not overload retirement savings into IRAs (the reason mine is overloaded is because of rollovers from 401K plans). Keep some in Roths (another IRA) as well as in taxable accounts.

[GailL1]

Well too bad I am not a whole lot younger to take advantage of it - I’m one of the 70.5 kids.

[APassionateLife]

📝 from the article!

(2) Retirement plan contributions

Like Social Security benefits, contribution limits to individual retirement accounts (IRAs), 401(k)s and other savings vehicles get an inflationary bump in 2023.

If you are 50 or older, the amount you can put into an IRA this year goes up from $7,000 to $7,500. That includes the $1,000 catch-up contribution available to older savers; the limit for those under 50 is $6,500 (up from $6,000 last year).

People age 50-plus can contribute up to $30,000 this year to a workplace retirement plan such as a 401(k), 403(b) or (for federal government workers) Thrift Savings Plan. That’s a $3,000 increase from the 2022 cap. The contribution limit for younger adults goes up from $20,500 to $22,500.

Secure 2.0 includes multiple provisions to raise contribution limits in coming years. Starting in 2024, the catch-up contribution for IRAs, which has been stuck at $1,000 for several years, will be indexed to inflation, which could mean annual increases. From 2025, 401(k) catch-up limits will also be linked to inflation, and there will be a new, higher contribution cap for people ages 60 to 63.

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[APassionateLife]

📝 from the article!

(1) Social Security payments. Inflation isn’t good for much, but it is providing Social Security beneficiaries with their biggest increase in monthly payments in more than 40 years. The 8.7 percent cost-of-living adjustment (COLA) raises the average monthly retirement benefit by $146, from $1,681 a month to $1,827.

The first retirement, disability and survivor benefit payments reflecting the increase go out in January. People receiving Supplemental Security Income (SSI), a Social Security–administered benefit for low-income people who are older, blind or have disabilities, got their first COLA-boosted payment Dec. 30.

The COLA is based on changes in prices for a set of consumer goods and services in the third quarter of 2022 compared to the same period the year before. Since hitting a 40-year high of 9.1 percent in June, inflation has cooled somewhat, dipping to 7.1 percent in November. If that trend continues, the new COLA will provide an especially strong buffer against higher prices, since the benefit increase is fixed at 8.7 percent through 2023.

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