This year hasn't been easy, but it's been especially tough for retirees hit hard by inflation and the stock market downturn.
For many older adults, Social Security is a lifeline during tough times. Starting in 2023, there will be a few changes that will affect your benefit amount -- the most significant being a historic cost-of-living adjustment (COLA).
There's good and bad news about these changes, though. Here's what you need to know heading into the new year.
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The good news about 2023
Perhaps the best news for seniors on Social Security is that you'll be receiving an enormous boost in benefits.
Next year's COLA will be a whopping 8.7%, meaning you'll receive an 8.7% increase in benefits starting in January 2023. As a result of the COLA, the average retiree will collect roughly $150 more per month.
Not only will this adjustment increase your monthly income, but it will also affect other areas of Social Security.
For example, the earnings limit will rise from $19,560 per year to $21,240 per year for those under full retirement age. This means if you continue working after claiming Social Security, you can earn more without facing benefit reductions.
A higher COLA will also result in a larger maximum benefit amount. In 2022, the most you can collect from Social Security is $4,194 per month. Starting in 2023, though, the maximum benefit will be $4,555 per month -- an increase of more than $4,000 per year.
The not-so-good news
Next year's COLA is positive in the sense that it will make rising costs more bearable for seniors. The bad news, though, is that it may not go far enough.
Although the 8.7% COLA is the highest adjustment in decades, around 55% of retired Americans say it's not enough, according to a recent survey from The Motley Fool.
This year has been record-breaking for inflation, so it makes sense that many retirees are feeling the pinch. But Social Security has a long history of not keeping up with rising costs, which could spell trouble for the future.
Since 2000, Social Security benefits have lost around 40% of their purchasing power, according to a 2022 survey from The Senior Citizens League. In other words, this isn't the first time Social Security has struggled to keep pace with inflation.
If this trend continues and benefits lose more of their buying power, it will become more and more difficult to rely on your monthly checks in retirement.
What you can do right now
If you haven't yet retired or are continuing to work in retirement, it may be wise to bulk up your savings. Social Security could potentially keep losing buying power over the years, and a stronger nest egg can help protect your retirement.
If you've already retired, there may not be much you can do to boost your savings. But it's still helpful to be aware of Social Security's limits. Your benefits may not go as far in the future, so by carefully managing your spending now, you'll be more prepared.
Social Security's COLA in 2023 will be historic, and retirees can expect a record-breaking increase in benefits. But that money may not go as far as you think. By understanding the advantages and disadvantages of next year's raise, you can keep your retirement on track.
