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Inflation has been skyrocketing over the past year, so it’s a good thing that the Social Security Administration (SSA) is increasing the cost of living adjustment (COLA) for benefits checks in 2023. It’s just one of many changes announced by the social security recently.
Here are some major Social Security changes coming next year — and what you need to know.
More than 70 million people depend on one of Social Security’s benefit programs, so annual changes to the program and payouts are always highly anticipated. But significantly higher benefits have been a rarity in recent years. With inflation soaring in 2022, the extra money will help seniors and others make ends meet.
- Cost of living adjustment (COLA) is on the riseThe SSA has announced that benefit checks will increase by 8.7 percent in 2023, a significant increase even from the 5.9 percent adjustment for 2022, which was already unusually high. In fact, the 2023 COLA is the highest increase since 1981, when it was 11.2 percent. The 8.7 percent adjustment will equate to a $146 increase in monthly benefits for the average retired Social Security worker, beginning in January. Specifically, the average check for retired employees will increase from $1,681 to $1,827. For a couple where both partners receive benefits, the estimated payment will increase from $2,734 to $2,972, up from $238. Since 1975, the SSA has tied cost-of-living adjustments to the Consumer Price Index for urban wage earners and white-collar workers ( CPI-W). The SSA compares the CPI-W of the third quarter of the previous year to the CPI-W of the third quarter of the current year to determine the COLA. It then adjusts the COLA based on the difference in CPI-W from one year to the next.
- Maximum taxable income will increaseIn 2022, the maximum income subject to Social Security taxes was $147,000. That is, employees who pay into the system are taxed on wages up to this amount, usually at the rate of 6.2 percent. In 2023, the maximum earnings will rise to $160,200, meaning a larger portion of an employee’s income will be subject to the tax. This adjustment is due to an increase in average wages in the US
- The maximum social assistance benefit will also increaseAs expected, the maximum Social Security benefit for an employee who retires at full retirement age will also increase in 2023, from $3,345 to $3,627. It’s important to note that this maximum applies to those who retire at full retirement age, which is 67 for anyone born after 1960. The maximum will be different for those who retire before full retirement age, as benefits are reduced in that situation. The same goes for those who retire past full retirement age, a strategy that can maximize your benefit.
- The average benefit for spouses and disabled employees is also risingIn 2023, the average benefit will increase across the board, including for widows, widowers and the disabled, for example. Here’s how those numbers break down: The SSA says the average widowed mother with two kids gets a hefty bump, from $3,238 to $3,520. Elderly widows and widowers living alone will see their benefit increase from $1,567 to $1,704. The benefit will be from $2,407 to $2,616 for a disabled worker with a spouse and one or more children. Of course these are averages and individual circumstances may vary.
- Social Security adjusts the exempt amounts of the income testIf you claim your retirement benefits before you reach full retirement age, Social Security will withhold some benefits from your check above certain income levels. It’s what the program calls the Retirement Income Test Waivers, and it can claim a large chunk of your benefits if you’re still working. Here’s how it works in 2023. If you start collecting Social Security before full retirement age, you could earn up to $1,770 a month ($21,240 a year) in 2023 before the SSA starts withholding benefits, at a rate of $1 in distributions for every $2 over the limit. In 2022, the maximum tax-exempt income was $1,630 per month ($19,560 per year). In the year you reach full retirement age, this rule still applies, but only until the month you reach full retirement age and with much more forgiving terms. In 2023, you can earn up to $4,710 per month ($56,520 per year) before benefits are withheld, at a rate of $1 in benefits for every $3 you earn above the cap (instead of every $2). In 2022, the threshold was $4,330 per month ($51,960 per year).Bonus: Some Medicare premiums will be lowerWhile Social Security and Medicare are different programs, most retirees participate in both, and this nationalized healthcare system has made a particularly notable change for 2023. Medicare Part B monthly premiums will drop from $170.10 in 2022 to $164, 90 in 2023. Medicare and Medicaid Services (CMS), total Medicare enrollment in October 2021 was nearly 64 million.It boils downGiven the massive levels of inflation the U.S. economy has experienced over the past year, it’s not too surprising that Social Security saw one of the largest benefits adjustments ever. But that is not the only change in the program as other levels and thresholds have also been adjusted to take into account rising inflation.