Millions of retired seniors get benefits through Social Security. And while those benefits aren't designed to sustain retirees in the absence of other income, they still help many people cover their bills and stay afloat financially.
Each year, Social Security tends to change based on economic factors. Here are some ways the program might evolve in 2023.
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1. Benefits should get a nice boost
In 2022, Social Security benefits got a 5.9% cost-of-living adjustment, or COLA, which is the most substantial raise seniors had gotten in decades. Because inflation is even higher this year, we can assume that 2023's COLA will be even more substantial.
In fact, based on inflation data so far, some are pointing to a whopping 8.6% COLA in 2023. We won't know what next year's COLA looks like until October, because it will be based on third quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But either way, we can expect it to be large.
2. The wage cap is likely to climb
Workers don't pay Social Security taxes on all of their earnings. Instead, there's a wage cap implemented each year that limits the amount of income that's subject to taxes.
This year, the wage cap sits at $147,000. But since that figure is tied to inflation, just like COLAs, we can expect it to rise in 2023 so that higher earners pay Social Security taxes on more of their earnings.
Incidentally, some lawmakers are fighting to increase the wage cap substantially to pump more money into Social Security and prevent future benefit cuts. So while nobody wants to pay more taxes, doing so could be the ticket to preserving Social Security for current beneficiaries as well as future generations.
3. The maximum benefit is likely to rise
Each year, there's a maximum Social Security benefit recipients can collect. This year, it's $4,194, and snagging that sum takes a lifetime of higher earnings, at least 35 years of higher earnings, and a delayed Social Security filing until age 70.
Next year, the maximum benefit is likely to increase. The reality, though, is that most seniors won't be eligible for it. But those who are might enjoy a pretty nice monthly payday.
4. The earnings-test limit is likely to climb
Seniors who wait until full retirement age (FRA) to claim Social Security don't have to worry about having benefits withheld due to earning too much money. But those who collect benefits and work simultaneously before FRA risk having benefits withheld if their income exceeds a certain threshold known as the earnings-test limit.
This year, that limit sits at $19,560 and increases to $51,960 for those reaching FRA. Next year, we can expect that limit to rise, giving workers more leeway to earn a higher paycheck without having any Social Security income withheld.
Pay attention to Social Security changes
Although Social Security has been around for a long time, specific details of the program can change from one year to the next. And it's important to stay aware of those changes, whether you're already collecting benefits or gearing up to do so in the future.
