Quick look for 2022 COLA

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corn18
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Quick look for 2022 COLA

Post by corn18 »

I want to do a quick look for what impact a 2022 COLA has in my model. I use nominal 2021 dollars for everything and then use real returns of 2% for my 60/40 portfolio. I am 55 and retired.

Income:

Pension: I have a military pension that I am drawing now, so that is tied to the SS COLA
SS: COLA applied to PIA which then flows through all scenarios (spousal, survivor)

Expenses:

Medicare premium: Does this go up the same as the SS COLA?
Federal tax brackets and standard deduction: Do these go up the same as the SS COLA?

I have a good handle on all my other expenses.

Appreciate any help.

Corn
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David Jay
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Re: Quick look for 2022 COLA

Post by David Jay »

corn18 wrote: Wed Jul 21, 2021 1:26 pmMedicare premium: Does this go up the same as the SS COLA?

No, this is based on costs of the program, not any external number.

Federal tax brackets and standard deduction: Do these go up the same as the SS COLA?

Tax brackets are adjusted using CPI-U, not CPI-W (the SS COLA), so there are minor differences. Nisiprius had a great chart here (the second chart in the linked post): viewtopic.php?p=6119540#p6119540
One number that is not inflation adjusted is the amount of income that causes taxation of SS benefits. That number was set by Congress a while ago and continues to increase retiree's taxation with inflation.
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corn18
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Re: Quick look for 2022 COLA

Post by corn18 »

David Jay wrote: Wed Jul 21, 2021 2:54 pm
corn18 wrote: Wed Jul 21, 2021 1:26 pmMedicare premium: Does this go up the same as the SS COLA?

No, this is based on costs of the program, not any external number.

Federal tax brackets and standard deduction: Do these go up the same as the SS COLA?

Tax brackets are adjusted using CPI-U, not CPI-W (the SS COLA), so there are minor differences. Nisiprius had a great chart here (the second chart in the linked post): viewtopic.php?p=6119540#p6119540
One number that is not inflation adjusted is the amount of income that causes taxation of SS benefits. That number was set by Congress a while ago and continues to increase retiree's taxation with inflation.
Thanks! I knew about the SS gotcha. The deduction is not inflation adjusted so more and more SS gets taxed each year.
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Alan S.
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Re: Quick look for 2022 COLA

Post by Alan S. »

The COLA is shaping up to exceed 5%, but for various reasons a good part of the COLA could be diverted due possibly to the largest Part B premium increase ever.

There are 3 reasons:
1) Expected catch up of deferred medical expenses due to Covid.
2) Approval of a new Alzheimer's drug that costs 56k a year and will have high demand
3) 2021 Part B increase was limited by Congress and that needs to be recovered

The combined effect of the above could erase the entire COLA, except for those with high SS benefits and not subject to IRMAA. So hang on for the November Medicare release before celebrating the October COLA release.
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corn18
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Re: Quick look for 2022 COLA

Post by corn18 »

Alan S. wrote: Wed Jul 21, 2021 4:27 pm The COLA is shaping up to exceed 5%, but for various reasons a good part of the COLA could be diverted due possibly to the largest Part B premium increase ever.

There are 3 reasons:
1) Expected catch up of deferred medical expenses due to Covid.
2) Approval of a new Alzheimer's drug that costs 56k a year and will have high demand
3) 2021 Part B increase was limited by Congress and that needs to be recovered

The combined effect of the above could erase the entire COLA, except for those with high SS benefits and not subject to IRMAA. So hang on for the November Medicare release before celebrating the October COLA release.
Ouch. I have 10 years to Medicare, but that will have a significant impact from 65 on.

It was quite a surprise when I just plugged in a 5% COLA for my pension and SS. But it might just get eaten up by higher prices. I can say my expenses this year in food and gas are about 10% higher than I budgeted, but haven't figured out how much of that is inflation. We don't need a new car for 5 years and no lumber planned, so that's good. I use actuals from the last 3 years for budgeting, but I may have to up a few categories next year.
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