The Census Bureau calls Social Security the country’s most important anti-poverty program. Social Security benefits provide monthly income for millions of retirees, spouses, survivors, and disabled workers. In fact, about one in five Americans will receive her monthly Social Security check in 2021, and these benefits have helped lift more than 26 million people out of poverty.
Given the impact Social Security has on financial well-being, it’s important for beneficiaries (and future beneficiaries) to stay informed about annual changes to the program. Here are four key changes coming to Social Security in 2023.
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1. Highest cost of living adjustment (COLA) since 1982
Social Security benefits get an annual cost of living adjustment (COLA) to help beneficiaries keep up with inflation. Of course, the consumer price index (that is, the widely used measure of inflation) has risen at its fastest pace in 40 years, leaving many Americans in dire financial straits. The rise has dominated the news headlines.
To rescale, social security benefits will get a COLA of 8.7% in 2023. This is the largest raise for a beneficiary since 1982, and in 1975 he is the fourth largest raise since COLA was automated. Using the November 2022 data, I calculated how the 2023 COLA will affect average monthly benefits for different types of beneficiaries.
- retiree: $1,823.46 (an increase of $145.94)
- Spouses: $902.52 (an increase of $72.23)
- Survivor: $1,446.67 (an increase of $115.78)
- Workers with disabilities: $1,482.97 (an increase of $118.69)
2. Increased maximum benefits for retirees
The social security benefits paid to retired workers depend on their income and age. Specifically, a formula is applied to her 35-year inflation-adjusted income of the worker’s highest wage, and the output of that formula is the Primary Insurance Amount (PIA). A PIA is a benefit that a worker receives if they enter Social Security at Full Retirement Age (FRA). Workers who apply for social security early will be penalized with reduced benefits, and workers who delay social security will be rewarded with increased benefits.
The PIA formula is adjusted annually to account for changes in prevailing wage levels. This will increase your maximum benefit each year. The chart below shows the maximum monthly benefits paid to retired workers at various ages in 2023.
|
Year |
62 years old |
full retirement age |
70 years old |
|---|---|---|---|
|
Maximum monthly benefit |
$2,572 |
$3,627 |
$4,555 |
Data Source: Social Security Administration.
3. Raising the upper limit of retirement income for workers who have not reached full retirement age
Individuals receiving Social Security retirement benefits can continue to work, but those with FRA coverage will have their benefits partially deducted after a certain threshold. Specifically, there are two different income limits. Throughout the year she is a lower amount for individuals who qualify for the FRA and a higher amount for individuals who reach the FRA in that year.
Details of the 2023 income limit (also known as the retirement income test waiver) are as follows:
- Minimum amount: Individuals earning more than $21,240 a year will be deducted a benefit of $1 for every $2 of income over the cap.
- Expensive: Individuals earning more than $56,520 before reaching the FRA will be deducted a benefit of $1 for every $3 of income over the cap.
Anyone can use this calculator from the Social Security Administration to determine what portion of their benefits will be deducted.
4. Raise the taxable income ceiling
Social security programs are largely funded by taxes. Most employees have 7.65% of their salary deducted as his FICA (Federal Insurance Contributions Act) tax, 6.2% goes to the Social Security program and the remaining 1.45% of his pay goes to the Medicare program.
However, there is a cap on the income subject to social security tax. The taxable income cap will be raised from $147,000 in 2022 to $160,200 in 2023. This means high earners will pay a little more for Social Security programs next year.
