If you are collecting Social Security benefits, you should be aware of some important upcoming changes next year. There are three primary ways the rules will differ in a manner that can affect your finances.
Here's what they are.
1. A big cost-of-living adjustment
The most notable change every retiree will experience is that their monthly check is going to be for a larger amount. It may be substantially bigger, in fact.
That's because the Social Security benefits program provides for periodic cost-of-living adjustments (COLAs) so benefits keep pace with inflation. Each year, the data for the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is compared with the prior year. If the average CPI-W is up in the third quarter of the year, retirees get a COLA to account for the increase.
Some estimates suggest the COLA could be as high as 11.4% next year as a direct result of surging inflation. If this happens, the typical retiree who is getting an average $1,669 benefit this year would see a $190 monthly increase in their Social Security checks in 2023.
2. An increase in the maximum benefit
The maximum monthly Social Security benefit is $4,194 in 2022. This is the largest possible benefit a senior could receive. And it's available only to those who claimed their first check at 70 and who also earned the maximum wages counted in their Social Security benefits formula for a period of at least 35 years.
The max benefit is expected to be even higher next year. Both wage growth and the large COLA are going to push up this maximum benefit. As a result, the small number of seniors who earned the most money possible throughout their careers will see even more money in their retirement checks next year.
It's important to realize, though, that even with a higher max benefit, Social Security isn't enough to live on. It's only intended to replace 40% of pre-retirement income (or less for the country's highest earners since benefits are progressive). So be sure to have supplementary savings, even if you are on track to get the highest checks on offer.
3. A higher threshold before work affects benefits
Finally, there's some good news for people who want to collect Social Security and who also want to work at least part-time. You are going to be allowed to earn a little more money in your paychecks next year before your earnings affect your benefits.
This rule impacts only people who haven't hit full retirement age (FRA) yet. Anyone who has already reached FRA is allowed to work and earn an unlimited amount. But those who haven't yet hit that age will see $1 withheld for every $2 earned above $19,560 in 2022 if they won't reach FRA at all during the year. Or if they will hit FRA but haven't yet, $1 is withheld for every $3 above $51,960.
The exact amount of the increase in these thresholds has not yet been announced. But they go up due to wage growth in most years. In 2021, for example, you could only earn up to $18,960 or $50,520 without benefits being affected. The increase next year could be similar or even greater than the one that occurred between 2021 and 2022 due to high levels of current wage growth.
Understanding these changes can help you be better prepared for the fact that you may get more money from Social Security next year and may also be able to step up your earnings a bit without risking losing any of your retirement checks.