How much will Social Security benefits increase by in 2023? That's the big question on a lot of people's minds. And in just a few days, we should have an answer.
On October 13, the Social Security Administration is expected to give an official update on next-year's cost-of-living adjustment (COLA). Earlier this year, some estimates were calling for a 2023 COLA as high as 11%. At this point, a raise that substantial seems unlikely unless September's inflation reading really surprises us. But either way, it's fair to assume that next-year's Social Security COLA will be the largest one in decades.
It's easy to see why so many people are eager to know that number. But it's not just 2023's COLA that the Social Security Administration will announce later this week. Here are a few important changes we should soon learn about.
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1. The earnings-test limit
The Social Security Administration allows seniors to work and collect benefits at the same time. Those who do so after reaching full retirement age (FRA) don't have to concern themselves with how much money they're earning, as it won't impact their benefits in any way. But people who are working and receiving benefits prior to reaching FRA will be subject to the earnings-test limit.
This year, those subject to the earnings-test limit risk having benefits withheld if their income exceeds $19,560 ($51,960 for those reaching FRA in 2022). Next year, the earnings-test limit is apt to increase. And that's an important thing, as it will give early Social Security filers an opportunity to earn more money before it impacts their benefits. At a time when inflation is soaring, the option to earn more is key.
2. The wage cap
Social Security's primary revenue source is payroll taxes, but those taxes only apply to a limited amount of income. This year, the wage cap for Social Security tax purposes is $147,000, so earnings beyond that point are exempt from those taxes.
Next year, the wage cap is apt to increase. While that may not impact retirees, it could make a big difference to higher-income households who will see their Social Security tax bills go up.
3. The value of work credits
Social Security eligibility doesn't just hinge on age. It also hinges on having earned enough lifetime work credits. Specifically, workers must earn a total of 40 credits (at a maximum of four credits per year) to quality for Social Security benefits in retirement.
This year, it takes earnings of $1,510 to earn a single work credit. Next year, that threshold is apt to rise. That may not matter to those who work on a full-time basis, as even minimum-wage earners will have no problem snagging their maximum four credits. But part-time workers should pay close attention to this particular change.
Look at the big picture
Next-year's Social Security COLA may get all the press once that information becomes available. But don't gloss over the other changes the Social Security Administration will be announcing simultaneously, as those, too, could have a big impact.
