Social Security Updates: The 4 Biggest Changes Coming in 2023
Social Security might seem like a pretty straightforward, unchanging benefits program, but the reality is that it undergoes changes every year, if not even more often. Perhaps the most visible of these changes is the annual cost-of-living adjustment that is announced every October and goes into effect the following January.
In recent times, the inflation adjustment has been relatively minimal, as CPI rates have been low. But in 2021 and 2022, inflation spiked, pushing the 2022 COLA to its biggest bump in 30 years. That trend will continue in 2023, as the Social Security Administration recently announced the new COLA adjustment going into effect in January. Here’s a look at the details of this recent news, along with other big Social Security changes coming in 2023.
Super-Sized Cost-of-Living Adjustment
The big news that all Social Security recipients were waiting to hear was finally announced on Oct. 13, 2022. The cost-of-living adjustment that will go into effect in January 2023 will be a whopping 8.7%. This super-sized COLA is one of the biggest in history, and the largest since 1981’s 11.2%, which came in the midst of a 13.5% CPI rate in 1980.
As the 1980/1981 example shows, the COLA often runs slightly below what consumers view as the “real” rate of inflation, as defined by the CPI. This is because the SSA uses a slightly different measurement known as the CPI-W to calculate the annual COLA. However, recipients in 2023 might end up with the winning hand after all. As the Federal Reserve has begun to aggressively raise interest rates in 2022 to combat high inflation rates, the CPI has already begun falling. The CPI peaked in June 2022 at 9.1%, and since then has fallen for three consecutive months. While still remaining high, as the Fed’s rate hikes continue to take effect, it’s entirely possible that by the time Social Security recipients get their first enhanced checks in January 2023 that the CPI will be well below the 8.7% increase in their benefits — which will last throughout 2023.
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Increased Social Security Wage Base
Whenever the Social Security COLA increases, so too does the Social Security wage base. This means that high-earning current workers will pay Social Security taxes on more of their earnings. While not great news for those still in the workforce, increases in the wage base help pay for the ever-increasing benefits received by retirees. As with the COLA, the jump in the wage base for 2023 has been significant as well, from 2022’s $147,000 to 2023’s $160,200.
Increased Maximum Social Security Benefit
Another one of the big changes that the Social Security Administration announces every year is the increase in the maximum possible Social Security benefit. This is tied primarily to the increase in the taxable wage base, as it only makes sense that the more you pour into the system in taxes, the more your potential maximum benefits should be. For 2023, if you wait to claim benefits at age 70, your maximum possible benefit will be $4,559, up from $4,194. Although this is a major jump, it’s also important to realize that the chance of any worker earning the full maximum benefit is extremely small. In addition to waiting to file for benefits until age 70, you’d also have to earn the full Social Security wage base amount or more for 35 years of your working career. Otherwise, your benefit is more likely to fall in line with the average Social Security benefit, which was $1,657 in 2022 and should be approximately $1,801 in 2023.
Rise in Earnings Limit
If you work before reaching your full retirement age, the Social Security Administration will temporarily reduce your benefits by $1 for every $2 you earn above the limit. In the year you reach full retirement age, that reduction drops to $1 for every $3 you earn above a separate, higher limit. For 2022, those limits were $19,560 and $51,960, but for 2023, those limits will jump to $21,240 and $56,520, respectively. This is big news for those who plan to continue to work in 2023 while still drawing Social Security benefits.
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