North Carolina Estate Planning Attorney Explains Impact of Lower 2024 COLA Increase

Legal Newswire

Nov 13, 2023

Wilmington, North Carolina – November 2023: With inflation skyrocketing in 2022, many have understandably welcomed the hearty 8.7% cost-of-living adjustment (COLA) boost to Social Security benefits this year. However, the Social Security Administration announced that COLA will cool down to 3.2% in 2024 as broader inflationary pressures ease. While still a positive for retirees, this lower adjustment requires prudent planning.

Estate planning attorney Scott Donaldson of Donaldson Law in Wilmington, NC, advises that “While a 3.2% COLA increase can still have a noticeable impact on retirement income and expenses, it is wise to proactively account for receiving a smaller boost than in 2023.”

How COLA Increases Impact Social Security Benefits

The annual COLA increase is determined by the Social Security Administration based on inflation figures. For those receiving Social Security, the 3.2% boost will increase the amount of each check they receive starting in January of 2024. This helps protect the purchasing power of benefits against rising costs.

Individual COLA increases are calculated based on each recipient’s current benefit amount. Those receiving the average monthly retirement benefit of $1,600 in 2023 would see an increase of $51 per month starting in 2024. So, while still positive, planning for relatively modest bumps is prudent.

Taxation Concerns With COLA Boosts

Higher Social Security benefits due to COLA increases can sometimes have tax implications as well. If the adjusted income of a recipient crosses certain thresholds, up to 85% of benefits may be subject to federal income taxes. Careful planning around such thresholds can help minimize surprises come tax time.

Strategies like Roth IRA conversions or charitable donations can potentially provide tax relief to counteract taxation of COLA-related income boosts. Consulting with a financial advisor and an estate planning attorney can provide guidance tailored to your unique financial picture.

COLA Increases Also Impact Medicare Premiums

In addition to taxes, COLA-related income changes for some may result in higher Medicare Part B and D premiums. In addition to the 6% Medicare Part B increase for premiums and deductibles announced by CMS for 2024, income-related monthly adjustment amounts (IRMAA) can cause additional premium hikes for Medicare Part B and D for individual incomes above $103,000 or joint returns claiming over $206,000.

“Healthcare costs are one of the biggest expenses facing retirees, so building COLA impacts into your Medicare planning is essential,” says Donaldson. “Steps like contributing to an HSA or reviewing Part D plans can help cushion against rising premium expenses. Savvy planning around IRMAA thresholds, as well as utilizing tools like Medigap plans, can help balance needs in light of smaller COLA increases.”

Given the economic climate, it can be challenging to decide how to best allocate your earnings and update your estate plan. Donaldson Law in Wilmington, NC, provides the following tips for Social Security recipients for retirement budgeting and estate planning in 2024.

4 Tips for Planning Your Estate Around the 2024 COLA

Review Your Budget Carefully

Inflation appears to be cooling, but it still continues to grow. The 3.2% COLA increase will aid Social Security recipients in facing rising costs, but reviewing your retirement budget and scaling lifestyle inflation expectations down from 2022-2023 levels is prudent.

Getting detailed on categories like food, housing, transportation, and healthcare can help you navigate a lower COLA hike. Reaching out to your financial planner for a fresh analysis is wise.

Update Your Retirement Withdrawal Strategy

For those drawing income from retirement accounts, a conservative COLA estimate should inform your withdrawal strategy. Withdrawing at a lower rate while adjusting withdrawals for a moderate COLA guards against tapping retirement funds too aggressively.

Consider Annuities to Supplement Social Security

Annuities can provide lifetime, fixed income to pair with Social Security. Having assured income from an annuity can help retirees budget confidently despite lower COLA adjustments.

Plan for Long-Term Care Needs

Factoring inflation into projected long-term care costs is critical. Plan for at least 4-5% annual inflation in long-term care costs. A smaller COLA bump may not keep pace with that level of increase.

Appropriate protection, like long-term care insurance, can provide security when COLA lags inflation.

Regular Reviews Are Key Amid Economic Uncertainty

While a 3.2% COLA in 2024 is lower than in 2023, it still merits proactive planning. As circumstances evolve, frequent check-ins ensure your strategies align with the current environment.

Donaldson Law urges its clients to connect to review their estate plans at least annually as economic conditions continuously shift. An estate plan tailored to you is crucial to navigating COLAs, taxes, healthcare costs, and beyond.

From budgeting to tax minimization to long-term care planning, prudent adjustments in response to a lower COLA can provide both stability and protection.

For more information about estate planning during retirement or to schedule a consultation with a Wilmington estate planning attorney, visit Donaldson Law, PLLC at https://www.donaldsonlawilm.com/.

About Donaldson Law

At Donaldson Law, attorney Scott Donaldson is dedicated to protecting what matters most – family, lifestyle, and legacy. With experienced counsel across estate planning, probate, elder law, and personal injury, the firm strives to empower clients with practical guidance tailored to their needs.

Located in Wilmington, North Carolina, Donaldson Law assists local individuals and families in making sound legal decisions aligned with their values and long-term objectives.