It’s been a tough year for many seniors. Inflation is rising, the stock market is falling, and a recession is looking more and more likely.
Nearly 90% of current retirees say Social Security is either their primary or secondary source of income, according to a 2022 Gallup poll. So it’s worth understanding the upcoming changes to the program and how they may affect your retirement income.
It’s been a historic year for Social Security, and the changes in 2023 could be massive. While we won’t know all the details until later this year, here’s what you can expect.
1. COLA Recorder
A COLA, or cost-of-living adjustment, is an annual increase in benefits that helps Social Security keep up with inflation. COLA typically falls between 2% and 4% per year. In 2021, seniors earned a whopping 5.9% increase due to a spike in inflation at the end of the year.
Next year, the COLA will almost certainly be even higher. Inflation is the highest it has been in decades, meaning beneficiaries will likely receive one of the largest COLAs on record.
Seniors will have to wait until October to find out exactly how much they’ll get, as that’s when the Social Security Administration will announce the new COLA. Some experts predicted that it could fall from 8.6% to 10.8%, however, based on inflation data this year.
2. Higher maximum benefit amount
Rising inflation affects almost all aspects of social security. A larger COLA results in larger monthly checks for seniors and also means the maximum benefit amount will increase.
The maximum benefit amount is based on your earnings history, the length of your career and the age at which you start claiming Social Security. In 2022 it is $4194 per month. But based on the record COLA we’re likely to see, there’s a good chance it will be even higher in 2023.
To what extent this will change is still unknown. However, between 2021 and 2022, it increased by almost $300 per month. With inflation skyrocketing, next year’s growth is almost guaranteed to be even higher.
In truth, only a small percentage of seniors will qualify for the maximum benefit amount. But if you aim to get the biggest paychecks possible, you’ll be able to get more money in 2023.
3. Higher salary limit
If you continue to work after filing for Social Security, you can keep more of your monthly paycheck in 2023.
Years before yours full retirement age (FRA), your income will depend on the income limit. If your earnings are above this limit, some of your Social Security benefits will be withheld until you reach the FRA. In some cases, the full benefit amount may be withheld from you, depending on your income.
In 2022, that limit will be $19,560 per year (or $51,960 if you hit FRA that year). However, because inflation has been so high, these limits are likely to increase significantly in 2023 – meaning you’ll be able to earn more without having your payments withheld.
Inflation has been hard on everyone, and the elderly are no exception. While we won’t know the specifics of the changes to Social Security next year until the coming months, they could help make spending increases more manageable.
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