The cost of living adjustment (COLA) for social security will be 2.8% in 2026. The annual COLA is calculated using the Labor Department’s consumer price index from July to September.[1] Social Security was signed into law on August 14, 1935. “Among Americans ages 65 and older, 40% rely on Social Security for half or more of their income.”[2]
Working Americans can claim a reduced social security benefit at age 62 and 29% choose to do so.[3] The total percentage for those who claim before their full retirement age, which varies by birth year, is 61 percent. All are receiving a reduced benefit. “Only 10% of Americans actually waited until age 70 to claim [their maximum] Social Security benefits.”[4] Another 29% are claiming their benefits between full retirement age and age 70. Why? Perhaps Americans claim when they need to, taking into account “life span versus health span.”
State Tax Liability After Moving Out?
High-tax states are challenging moves by high earners and high net worth individuals who are moving out of their states to avoid higher tax rates. Taxpayers should remember that citizens always have the right to design their affairs to pay as little tax as possible. This is avoidance.
However, evasion is illegal. The two core questions about state tax liability after a move out of that state are residency and source of income.[5] Residency is always related to “intent,” not just a checklist. There is an important Massachusetts case where the spouse who was least supportive of a geographic move inadvertently sabotaged the couple’s tax planning by stating her continuing attachment to Massachusetts in court. Her answer is subject to some other interpretation, but reinforces the possibility that the state will be unreasonable.
The source of income is equally complicated by the interplay of federal and state rules and by the complexity of some compensation, especially retirement income structures. Also, as one author points out, once in the state court of the state the taxpayer was trying to leave, the decision may go against the taxpayer because the court system supports the aggressive stance taken by the Revenue Department, forcing the taxpayer into “a cost-benefit decision—fight or pay.”[6]
If you or any other advisors have questions about the issues raised here, please contact your investment manager or one of us.
— William H. Darling, Chairman & CEO
— Jeanne M. FitzGerald, CPA – Tax Manager