(Katee Brockman)
It has been a difficult year for many seniors. Inflation has been rising, the stock market is falling, and a recession seems more and more likely.
Nearly 90% of current retirees say Social Security is a major or minor source of income, according to a 2022 Gallup poll. So it’s worth understanding the upcoming changes to the program and how they might affect your retirement income.
It’s been a landmark 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.
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1. COLA record
A COLA, or cost-of-living adjustment, is an annual increase in benefits to help Social Security keep up with inflation. Normally, the COLA falls between 2% and 4% per year. In 2021, seniors got a whopping 5.9% increase to account for rising inflation at the end of the year.
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Next year, the COLA will surely be even higher. Inflation is the highest in decades, which means beneficiaries will likely see one of the largest COLAs on record.
Seniors will have to wait until October to see exactly how much they will receive, as that is when the Social Security Administration will announce the new COLA. However, some experts have forecast it could fall between 8.6% and 10.8%, based on year-to-date inflation data.
2. Highest maximum benefit amount
Rising inflation affects almost every aspect of Social Security. A higher 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 you start claiming Social Security. In 2022, it is $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 will change is uncertain. However, between 2021 and 2022, it increased by almost $300 per month. With inflation soaring, next year’s momentum is almost certain to be even greater.
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 at stake in 2023.
3. Higher Earning Limit
If you continue to work after you apply for Social Security, you may keep more of your monthly checks in 2023.
During the years prior to his full retirement age (FRA), your earnings will be subject to an earnings limit. If your wages exceed that limit, a portion of your Social Security benefits will be withheld until you reach your FRA. In some cases, your full benefit amount may be withheld, depending on how much income you earn.
In 2022, that limit is $19,560 per year (or $51,960 if you reach your FRA this year). However, because inflation has been so high, those limits are likely to increase substantially in 2023, meaning you’ll be able to earn more without having your benefits withheld.
Inflation has been hard on everyone, and seniors are no exception. While we won’t know the details of next year’s Social Security changes until the next few months, they could help make rising costs more bearable.
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