There’s really nothing nice to say about inflation when it comes to your bottom line.
It’s hard on your wallet. It’s hard on your savings because it reduces the buying power of the dollars you socked away. And it’s hard on your paycheck, because chances are your last raise did not keep pace with headline inflation, which the latest reading puts at 8.2%.
Wallet bills – stock
How does inflation affect my standard of living?
But that same high inflation has led to a couple of changes that might offer you a little relief. And every little bit helps.
Starting next year, your paycheck could be a little bigger thanks to inflation adjustments that the Internal Revenue Service will make to 2023 federal income tax brackets and other provisions.
1. Your take-home pay may go up next year
The net effect of those adjustments is this: More of your 2023 wages will be subject to lower tax rates than they were this year. And you may be able to deduct higher amounts of income.
Here’s the skinny on that.
2. You can reduce your taxable income … and save more for the future
When you save money in a tax-deferred workplace retirement plan like a 401(k) or 403(b), you can reduce your taxable income because you get a deduction for your contribution the year you make it. The more you save, the more you cut your tax bill.
Starting next year, you will be allowed to contribute up to $22,500 into your 401(k), 403(b), most 457 plans or the Thrift Savings Plan for federal employees.
That’s $2,000 – or roughly 9.8% – more than the current $20,500 federal contribution limit, a direct result of higher inflation. Those are the biggest adjustments made to the contribution limit in decades.
More about those changes and changes to IRA contribution limits can be found here.
3. Your Social Security payments will go up
Social Security recipients will receive an annual cost-of-living adjustment of 8.7% next year, the largest increase since 1981.
The spike will boost retirees’ monthly payments by $146 to an estimated average of $1,827 for 2023.
No one will be living large on that amount, but the extra cash will offset some of the higher prices for everyday expenses that seniors incur.
Here’s more on the coming boost to Social Security checks, along with welcome news that there will be a drop in Medicare Part B premiums next year.