4 Huge Social Security Changes Taking Effect January 2023
According to a 2022 survey by The Motley Fool, 97% of American retirees say they have noticed the effect of inflation on their expenses, and 85% of those surveyed say inflation is putting a strain on their budget.
Social Security can be an important source of income, especially during tough economic times. But the program is on track to face big changes in 2023, and those changes will affect your benefits one way or another. Here’s what you can expect from January.
1. Retirees will see their benefits increase by 8.7%
Next year’s cost of living adjustment (COLA) is historic, as it will be the largest in over 40 years. Beneficiaries will see their monthly payments increase by 8.7%, which will equate to about $146 per month for the average retiree.
All retirees who are currently collecting Social Security will receive this increase in benefits starting in January 2023. COLA also applies to Supplemental Security Income (SSI) as well as other types of benefits, such as unemployment benefits. spouse or divorce.
2. Workers can earn more without seeing a reduction in benefits
Many retirees choose to continue working to some degree even after filing for Social Security benefits. This may be a smart decision in some situations, but if you have not yet reached full retirement age (FRA), your benefits may be reduced depending on your earnings.
The annual income 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||Income limit if you are under FRA||Income limit if you reach your FRA this year|
|2022||$19,560 per year||$51,960 per year|
|2023||$21,240 per year||$56,520 per year|
If you continue to work after taking Social Security, a higher earnings limit means you can earn more before your benefits are reduced. In other words, you will be able to keep more of your checks from January 2023.
3. The salary cap will increase significantly
Workers contribute to the social security program through payroll taxes. These taxes then finance the benefits of current retirees. But workers won’t have to pay payroll taxes on all of their earnings, and the salary cap dictates how much of your earnings will be subject to social security contributions.
In 2022, that salary cap is $147,000 per year, and any income over that limit is not taxed for Social Security. In 2023, however, the salary cap increases to $160,200 per year.
If you earn between $147,000 per year and $160,200 per year, you will likely see your tax bill increase in 2023.
4. Work credits will be harder to earn
Workers are not immediately eligible for Social Security, and to receive retirement benefits, you will 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 worth $1,510. Starting in 2023, a single credit will be worth $1,640. That means workers will have to earn more to collect the credits they need for retirement benefits.
Social security plays an essential role in the retirement of many seniors. Staying informed of upcoming program changes will make it easier for you to get the most out of your benefits in 2023 and beyond.