It's been a tough year for many seniors. Inflation has been surging, the stock market is falling, and a recession is looking more and more likely.
Nearly 90% of current retirees say that Social Security is either a major or minor source of income, according to a 2022 survey from Gallup. It pays, then, to understand the upcoming changes to the program and how they could affect your retirement income.
It's been a historic year for Social Security, and the changes in 2023 could be massive. While we won't know all of the details until later this year, here's what you can expect.
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1. Record-breaking COLA
A COLA, or cost-of-living adjustment, is an annual boost in benefits to help Social Security keep up with inflation. Normally, the COLA falls between 2% and 4% per year. In 2021, seniors earned a whopping 5.9% bump to account for the surge in inflation late in the year.
Next year, the COLA will almost certainly be even higher. Inflation is the highest its been in decades, which means beneficiaries will likely see one of the largest COLAs on record.
Seniors will need to wait until October to see exactly how much they'll receive, as that's when the Social Security Administration will announce the new COLA. Some experts have predicted that it could fall anywhere from 8.6% to 10.8%, however, based on inflation data so far this year.
2. Higher maximum benefit amount
Rising inflation affects nearly all aspects of Social Security. A higher COLA results in larger monthly checks for seniors, and it also means the maximum benefit amount will increase.
The maximum benefit amount is based on your earnings history, the length of your career, and the age you begin claiming Social Security. In 2022, it's $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 it will change is uncertain. However, between 2021 and 2022, it increased by nearly $300 per month. With soaring inflation, it's almost guaranteed that next year's boost will be even larger.
To be fair, only a small percentage of seniors will qualify for the maximum benefit amount. But if you're aiming for the largest possible checks, there will be more money up for grabs in 2023.
3. Higher earnings limit
If you continue to work after filing for Social Security, you may get to keep more of your monthly checks in 2023.
During the years leading up to your full retirement age (FRA), your income will be subject to an earnings limit. If your wages exceed that limit, a portion of your Social Security benefits will be withheld until you reach your FRA. In some cases, you could potentially have your entire benefit amount withheld, depending on how much you're earning in income.
In 2022, that limit is $19,560 per year (or $51,960 if you will be reaching your FRA this year). Because inflation has been so high, though, it's likely those limits will increase substantially in 2023 -- which means you'll be able to earn more without having your benefits withheld.
Inflation has been tough on everyone, and seniors are no exception. While we won't know the specifics of next year's Social Security changes until the coming months, they could help make rising costs more bearable.
