Everyone will be impacted by extreme inflation in 2022 and probably into 2023, but retired California seniors face hard choices. Without increased income, extreme inflation causes a downward slide in lifestyle, the steak to hamburger or chicken to beans and cat food regression. Lower-income retirees may be forced back to part- or full-time employment. If they are drawing Social Security benefits before SS full retirement age, any wage income will cause their SS benefits to be reduced. In addition to federal income tax on employment income, any significant increase in wage income may result in federal tax on 50% of their SS benefits.
On the plus side, next year their SS benefits should be greatly increased by a cost of living adjustment, but a large COLA could also result in federal tax on their SS benefits. The federal government’s right hand giveth and the left hand taketh away while applying a thumb on the scale of SS benefit taxation by never adjusting thresholds for inflation.
Of course, if you are looking at a cat food diet the decision to go back to work is inevitable. Or California seniors could choose to work in California’s illegal multibillion-dollar underground cash economy, bypassing federal tax, state tax and any impact on SS benefits entirely.
Gregory Whitney
Newhall
