A whopping 97% of retired Americans say they've noticed inflation's effect on their expenses, according to a 2022 survey from The Motley Fool, and 85% of those respondents say that inflation is stretching their budget.
Social Security can be a significant source of income, particularly during tough economic times. But the program is on track to face some big changes in 2023, and these changes will affect your benefits in some way or another. Here's what you can expect starting in January.
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1. Retirees will see an 8.7% boost in benefits
Next year's cost-of-living adjustment (COLA) is historic, as it will be the largest in more than 40 years. Beneficiaries will see their monthly payments increase by 8.7%, which will amount to around $146 per month for the average retiree.
All retirees currently collecting Social Security will receive this boost in benefits starting in January 2023. The COLA also applies to Supplemental Security Income (SSI) as well as other types of benefits, such as spousal or divorce benefits.
2. Workers can earn more without seeing a benefit reduction
Many retirees choose to continue working in some capacity even after filing for Social Security benefits. That can be a smart move in some situations, but if you haven't yet reached your full retirement age (FRA), your benefits could be reduced depending on your earnings.
The annual earnings limit is the amount you can earn before facing benefit reductions. If you earn more than this limit, a portion of your benefits will be temporarily withheld until you reach your FRA.
| Year | Earnings Limit If You're Under FRA | Earnings Limit If You Will Reach Your FRA This Year |
|---|---|---|
| 2022 | $19,560 per year | $51,960 per year |
| 2023 | $21,240 per year | $56,520 per year |
Source: Social Security Administration.
If you continue to work after taking Social Security, a higher earnings limit means you'll be able to earn more before your benefits are reduced. In other words, you'll be able to keep more of your checks starting in January 2023.
3. The wage cap will increase substantially
Workers contribute to the Social Security program through payroll taxes. Those taxes then fund benefits for current retirees. But workers won't owe payroll taxes on all of their income, and the wage cap dictates how much of your earnings will be subject to Social Security taxes.
In 2022, that wage cap is $147,000 per year, and any earnings above that limit aren't taxed for Social Security. In 2023, though, the wage cap is increasing to $160,200 per year.
If you're earning between $147,000 per year and $160,200 per year, you'll likely see your tax bill go up in 2023.
4. Work credits will be harder to earn
Workers are not eligible for Social Security immediately, and to earn retirement benefits, you'll need to accumulate at least 40 work credits throughout your career. The maximum number of credits you can earn per year is four, and the value of each credit changes from year to year.
In 2022, one credit is valued at $1,510. Starting in 2023, a single credit will be worth $1,640. This means workers will need to earn more to collect the credits they need for retirement benefits.
Social Security plays an integral role in retirement for many seniors. By staying informed of upcoming changes to the program, it will be easier to make the most of your benefits in 2023 and beyond.
