It's hardly a secret that Social Security has been around for many years and that certain aspects of the program haven't changed for decades. But come October, we'll be learning about some key changes to Social Security that will take effect in 2023.
Why October? Many of the program's year-to-year changes hinge on third-quarter inflation data. Since we're still in the midst of 2022's third quarter, we don't yet have a full data set to work with. But once those numbers come in next month, the Social Security Administration will be able to announce some key updates to the program. Here are four changes to look out for.
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1. Next-year's COLA
Each year, Social Security beneficiaries are entitled to a cost-of-living adjustment, or COLA, the purpose of which is to help seniors maintain their buying power as inflation drives living costs upward. Because inflation has soared this year, 2023's COLA could be seniors' largest raise in decades. While we can't yet nail down that number, it's fair to assume that it will be substantially higher than the 5.9% COLA seniors got at the start of 2022.
2. Next-year's wage cape
Social Security is funded heavily by payroll-tax revenue. But higher earners don't pay Social Security taxes on all of their income. Rather, there's a wage cap that determines how much in earnings are subject to those taxes each year.
Currently, the wage cap sits at $147,000, so income beyond that point isn't taxed for Social Security purposes. Next year, however, we can bank on that wage cap rising, so higher earners should prepare to pay up.
3. Next-year's earnings-test limits
Seniors who collect Social Security and work at the same time risk having some of their benefits withheld if they haven't yet reached full retirement age. But whether that happens hinges on earnings.
Each year, there's an earnings-test limit that's established that tells seniors how much income they can collect from a job before benefits are impacted. This year, the wage cap sits at $19,560. For those reaching full retirement age in 2022, it's $51,960.
Just as the wage cap is likely to increase in 2023, the earnings-test limit is likely to rise, as well. But that's actually a good thing for seniors, as it gives them the option to earn more money before their benefits are affected.
4. Next-year's work credit earnings requirement
Social Security doesn't automatically pay all seniors a benefit. To qualify, workers must earn 40 work credits, the value of which can change from year to year.
Right now, a single work credit is worth $1,510 of earnings. Next year, the value of a work credit is likely to rise, which means it may become harder for part-time workers to get the credits they need to qualify for benefits.
Incidentally, the maximum number of work credits that can be earned in a single year is four. So it's possible to go several years without earnings, and still be eligible for a monthly Social Security benefit down the line.
How will these changes impact you?
You don't need to be on Social Security to be impacted by changes to the program. If you're a higher earner, for example, a higher wage cap could leave you paying more into Social Security.
That's why it's so important to stay apprised of updates like these. You may be decades away from collecting benefits, but that doesn't mean you shouldn't keep tabs on how the program's rules are evolving.
