It has been a difficult year for many seniors. Inflation was on the rise, the stock market was falling, and a recession seemed more and more likely.
Nearly 90% of current retirees say Social Security is either a primary or secondary source of income, according to a 2022 Gallup survey. It’s helpful, then, to understand upcoming changes to the program and how they might affect your retirement income.
It was a historic 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.
1. Record breaking COLA
A cost-of-living adjustment, or cost-of-living adjustment, is an annual increase in benefits to help Social Security keep pace with inflation. Typically, the value of COLA decreases between 2% and 4% per year. In 2021, seniors made a whopping 5.9% rise to explain higher inflation late in the year.
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Next year, the value of COLA will almost certainly be higher. Inflation is at its highest level in decades, which means recipients will likely experience one of the largest cash collections (COLA) on record.
Seniors will need to wait until October to see exactly how much they will get, which is when the Social Security Administration announces the new COLA. Some experts have predicted it could fall anywhere from 8.6% to 10.8%, though, based on inflation data so far this year.
2. Highest interest amount
Rising inflation affects almost all aspects of Social Security. Higher COLA rates result in more monthly checks for seniors, and this also means an increased maximum benefit amount.
The maximum benefit amount depends on your earnings history, the length of your career, and the age at which you begin claiming Social Security. In 2022, it $4,194 per month. But based on the record-breaking COLA we’ll likely 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 about $300 per month. With inflation rising, the increase next year is almost certain to be even greater.
To be fair, only a small percentage of seniors will be eligible for the maximum benefit amount. But if you aim for as many checks as possible, there will be more money available in 2023.
3. Maximum profit limit
If you continue to work after applying for Social Security, you may get more monthly checks in 2023.
During the years before you full retirement age (FRA), your income will be subject to the earnings limit. If your salary exceeds this limit, a portion of your Social Security benefits will be withheld until you reach your FRA. In some cases, the entire benefit amount will likely be deducted, depending on how much income you earn.
In 2022, that limit would be $5,660 per year (or $51,960 if you were to reach your HR assessment this year). Since inflation has been so high, these limits will likely increase significantly in 2023 – which means you’ll be able to earn more without withholding your benefits.
Inflation has been hard on everyone, and the elderly are no exception. Although we won’t know the details of next year’s Social Security changes until the coming months, they could help make higher costs more bearable.
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