It’s been a tough year for many seniors. Inflation has risen, the stock market is down and a recession looks increasingly likely.
Nearly 90% of current retirees say Social Security is a major or minor source of income, according to a 2022 survey from Gallup. It is therefore beneficial to understand the upcoming changes to the program and how they could 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 the end of the year, here’s what you can expect.
1. COLA record
A COLA, or cost of living adjustment, is an annual benefit increase to help Social Security keep up with inflation. Normally COLA falls between 2% and 4% per year. In 2021, the elderly gained a whopping 5.9% increase to account for the spike in inflation at the end of the year.
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Next year the COLA will almost certainly be even higher. Inflation is the highest in decades, which means beneficiaries will likely see one of the biggest COLAs on record.
Seniors will have to wait until October to see exactly how much they will receive, because that’s when the Social Security Administration will announce the new COLA. Some experts have predicted it could drop to 8.6% to 10.8%, however, based on inflation data so far this year.
2. Higher maximum benefit amount
Rising inflation affects almost every aspect of social security. A higher COLA results in larger monthly checks for seniors, and it also means that the maximum benefit amount will increase.
The maximum benefit amount is based on your income history, the length of your career, and the age at which you start claiming Social Security. In 2022, it’s $4,194 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.
Exactly how much that will change is uncertain. However, between 2021 and 2022, it increased by almost $300 per month. With inflation soaring, next year’s boost is almost guaranteed to be even bigger.
To be fair, only a small percentage of seniors will qualify for the maximum benefit amount. But if you aim for the biggest checks possible, there will be more money to be made in 2023.
3. Higher revenue limit
If you continue to work after filing for Social Security, you may be able to keep more of your monthly checks in 2023.
In the years before full retirement age (FRA), your earnings will be subject to an earnings limit. If your salary exceeds this limit, a portion of your Social Security benefits will be withheld until you reach your FRA. In some cases, the total amount of your benefits could potentially be withheld, depending on the amount of your income.
In 2022, that limit is $19,560 per year (or $51,960 if you reach your FRA this year). Because inflation has been so high, however, it’s likely these limits will increase significantly in 2023 – meaning you’ll be able to earn more without having your benefits withheld.
Inflation has been hard on everyone, and the elderly are no exception. While we won’t know the details of next year’s Social Security changes until the coming months, they could help make rising costs more bearable.
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