Whether you are contributing to Social Security while still working or you’re already in retirement, changes are coming. For those who will rely on these Social Security benefits, it’s critical to not just know what’s heading your way but also to ensure you are planning for these changes early on. Here are some of the most important changes to consider.
Social Security benefits get an 8.7% increase in 2023
In October of 2022, the Social Security Administration announced an 8.7% increase in Social Security and Supplemental Security Income (SSI) benefits. About 65 million Americans will see this boost in their benefits starting in January, averaging about $140 more added to Social Security benefits checks.
The increase in these benefits is a cost-of-living adjustment and is tied to changes in the Consumer Price Index, which has increased substantially this year. If inflation continues to rise in the U.S., this adjustment will become more important than ever, even becoming critical to helping people maintain their overall financial stability.
Maximum taxable earnings for Social Security increase in 2023
The Social Security Administration also announced an increase in the maximum earnings that are subject to Social Security taxes. In 2023, this will increase from $147,000 to $160,200, an increase of $13,200.
The maximum taxable earnings is the limit on how much of one person’s income is subjected to Social Security tax. These taxes are what work to fund the monthly payments people receive from the Social Security Administration during their retirement years.
The tax is contributed by the employee and by the employer; each pays 6.2% of income up to the taxable limit. If you are self-employed, you must pay for both contributions, or a total of 12.4% of income. In 2023, the tax rate will remain 6.2% for the employer and 6.2% for the employee, but the maximum income that is taxable will rise to $160,200.
Want to learn how to build wealth like the 1%? Sign up for Worthy to get ideas and advice delivered to your inbox.
Retirement earnings test exempt amount increases in 2023
Another notable change relates to the earnings test, which applies to people who are under their normal retirement age (NRA), collect Social Security benefits, and are still working. In that case, Social Security will reduce your benefit, based on how much you earn. Once you achieve your NRA, your benefit will be restored.
In 2023, if you claim Social Security benefits prior to your full retirement age, the Social Security Administration will reduce your benefit if you earn more than $1,770 per month, up from $1,630 per month in 2022.
This changes a bit in the year you are set to reach full retirement age. At that point, up until the month you hit full retirement age, you can earn up to $4,710 per month (up from $4,330 in 2022) before some of your benefit is reduced.
Full retirement age increase
And then there is your normal or full retirement age. Way back in 1983, some changes to the law allowed for a gradual increase in the full retirement age – the age at which a person can begin to receive full retirement benefits. Initially, it was 65, but the goal was to increase it to 67 over a 22-year period. Full retirement age is based on your birth date.
To be clear, a person can only receive benefits when they reach 62, which is the minimum retirement age, but they receive a reduced amount until they reach the full retirement age. Since the start of this law, the retirement age has grown from 65 years to 66 years and 4 months. It will continue to rise over the next few years until it reaches 67. Since people are living and working longer, they can continue to work and contribute to Social Security to an older age.
Changes further in the future
There could be more changes to Social Security in the coming years, in order to ensure the program’s solvency. Some of the more often discussed changes could affect the cost of living adjustment, the maximum taxable income, and full retirement age.
The cost of living adjustment could be changed to be based on a different inflation index that would be more realistic for the elderly. The maximum taxable income could be raised, which would bring more financial support to the program, and, of course, the full retirement age could be raised as well, so that people would be contributing more over a lifetime.
Any changes would require further legislation by Congress, but they could be on the horizon.
While Social Security benefits are getting their biggest raise since 1981, other aspects of the program are changing as well. And even with that cost of living adjustment, inflation should still be a concern for seniors, impacting the value of that raise. If you are still working and contributing, the new taxable income maximum may affect your taxes and take-home pay. You want to know about these changes and how they will affect you and your financial plans.
FinanceBuzz is not an investment advisor. This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice.
- Get $3-$300 in free stock when your account is approved*
- Invest in 1000s of stocks and ETFs with fractional shares—no account minimums
- Follow friends in a social feed and learn from a diverse community of investors
- * Free stock offer valid for U.S. residents 18+. Subject to account approval.