Around 48 million retirees currently receive Social Security checks each month. But there are many more who will be following in their footsteps over the next several years.
It's wise, therefore, for individuals who are still working to pay attention to major developments in the federal program. Here are three Social Security changes in 2023 that will impact millions of Americans who aren't retired yet.
Image source: Getty Images.
1. Increased maximum taxable income
Currently, Federal Insurance Contributions Act (FICA) payroll taxes apply only to annual income up to $147,000. This maximum taxable income will increase to $160,200 in 2023. This represents the largest one-year jump in the history of Social Security.
How many Americans will this increase impact? Around 19.6% of U.S. households made $150,000 or more in 2021, according to the U.S. Census Bureau. That translates to more than 25.7 million households.
This percentage includes an unknown number of dual-income households. However, single heads of household made up roughly 35% of total households in the 2020 census. If we use this figure as an estimate, at least 9 million Americans would be impacted by the increased maximum taxable income next year.
2. Earnings test for early claimants
Some Americans who receive Social Security retirement benefits actually haven't fully retired. Anyone who claims benefits before reaching full retirement age could have benefits withheld.
In 2022, the federal government will withhold $1 in benefits for every $2 earned above $19,560. The government will withhold $1 in benefits for every $3 earned above $51,960. These two thresholds will increase in 2023. The lower amount will be raised to $21,240. The higher amount will be raised to $56,250.
There aren't any hard numbers available on how many Americans will be impacted by this change. However, a survey conducted earlier this year by the Nationwide Retirement Institute found that 42% of respondents plan to file for Social Security benefits before their full retirement age yet keep working.
Note, though, that this survey included adults ages 26 and older. It might not accurately reflect the number of individuals who claim Social Security retirement benefits early and continue to work in 2023.
3. Increased benefits
Americans who aren't retired yet won't receive the 8.7% cost-of-living adjustment (COLA) that retirees will enjoy next year. However, even individuals who are years away from retirement will still be helped by this increase.
The average Social Security retirement benefit will increase in 2023 thanks to the historic COLA. So will the maximum benefit. This means that the base amount that the millions of Americans who haven't retired yet can expect from Social Security will be greater, too.
Depending on how far away your retirement is, you could be in store for much higher benefit amounts. Social Security has increased its monthly benefit in all but three years since implementing an automatic annual COLA in 1975.
Granted, these increases are only being made due to inflation. The purchasing power of the Social Security retirement benefits actually isn't growing in real dollars. In some ways, the purchasing power could even decrease despite regular COLAs.
The biggest changes are yet to come
While these are three significant changes to Social Security that will impact Americans who aren't retired yet, the biggest changes are yet to come. Social Security will become insolvent by 2035 if nothing is done. This would mean a reduction in benefits of around 24%.
It's a pretty good bet, though, that politicians in Washington will bolster the program to preserve benefits. However, the changes that they make to accomplish this will likely affect millions of Americans in ways yet to be determined.
