Big Changes in Store for Social Security COLA Adjustments in 2023
Social Security recipients are in for a raise in 2023.
Inflation is an issue that typically works against U.S. consumers, as it raises the cost of buying most goods and services.
Yet once in a while, consumers catch a break with rising inflation. Exhibit “A” is the U.S. Social Security Administration’s move to boost cost of living adjustments (COLA) by 8.7% in 2023. This will be the highest COLA increase in 40 years.
That’s a fairly big deal for older Americans who live on a fixed income. For example, a Social Security recipient who currently receives $2,000 per month will collect $2,173 starting in 2023.
According to the SSA, the Social Security Act links any annual cost of living adjustments to the increase in the Consumer Price Index, as determined by the Department of Labor’s Bureau of Labor Statistics. With inflation in play, that means the COLA benefit rises from 5.9% in 2022 to 8.7% in 2023.
It’s not just a COLA benefit raise.
That’s not the only COLA adjustment for 2023.
The SSA has also announced several new wrinkles for workers starting in the new year. Here’s a snapshot.
Higher Social Security Income Thresholds
For any American paying into Social Security, the annual “pay-in” figure was $147,000 in 2022. Known as the “taxable minimum”, the pay-in number is defined as the portion of your annual income that is taxed by Social Security each year. Any income earned above the $147,000 threshold is not taxed by Social Security. In 2023, that threshold rises to $160,200, which means your income up to $160,200 is subject to Social Security taxation at a 7.65% tax rate.
Americans Working, Receiving Benefits & Have Not Reached Full Retirement Age
For Americans who are still working but also receiving Social Security benefits, there is a limit to how much you can earn in order to receive your benefits. If you are younger than the full retirement age and earning over the yearly income limit, the SSA may reduce your benefit amount. For example, if you are under full retirement age (67 if you were born after 1960) for the entire year, the SSA will deduct $1 for every $2 you earn above the income limit. That limit rises from $19,560 in 2022 to $21,240 in 2023.
This means that if you begin taking Social Security benefits prior to your full retirement age, you’re allowed to earn up to $1,770 monthly or $21,240 annually before the SSA begins withholding payout benefits.
Maximum Social Security Benefit Rises
The SSA has also increased the maximum Social Security benefit for Americans who start Social Security at age 67 in 2023. In 2023, that figure rises from $3,345 to $3,627 per month.
Lower Medicare Premiums
Social Security recipients may not know it, but Medicare premiums for Americans 65-years-old and higher have an impact on Social Security payouts. In 2023, the standard Medicare Part B premium will fall by $5.20 – from $170.10 to $164.90. The SSA deducts those payments straight from a recipient’s Social Security benefits check.
Check Your Social Security Payout
With change in the air for 2023, one good way to check your Social Security benefits is through the SSA’s Social Security account.
There, any American can manage their Social Security accounts and check on payout benefits, both current and future.
To learn more about these changes and how they affect your retirement plan, reach out to us today.