There’s a huge cost-of-living increase coming to Social Security recipients this year — the largest adjustment since 1981, thanks to pandemic-prompted inflation. But that’s not the only change coming. Other dollar limits on Social Security payroll taxes, taxes on benefits, disability thresholds and qualifying for benefits also will be changing for 2023.
If you need help setting and reaching retirement goals, consider working with a financial advisor.
Changes to Your Social Security in 2023 The 8.7 % cost-of-living adjustment (COLA) will hit the accounts of about 70 million recipients starting this month. Because of changes to Medicare, many of those people will be able to hang onto all of that benefit raise, which averages more than $140 a month.
“Medicare premiums are going down and Social Security benefits are going up in 2023, which will give seniors more peace of mind and breathing room,” said Kilolo Kijakazi, the acting commissioner of the Social Security Administration. “We can provide more support to older Americans who count on the benefits they have earned.”
Increases to Monthly Benefits and Lifetime Earnings Maximum Monthly Benefit Increases
Prompted by the higher inflation rate, the maximum payment for retirees at their full retirement age increases by $282, from $3,345 to $3,627. To qualify, workers need to have been on the job for at least 35 years. And they need to have hit the maximum taxable earnings cap each year. That cap is $160,200 this year, up from $45,000 35 years ago, in 1988.
Lifetime Earnings Minimum Increases
To qualify for Social Security retirement benefits, you need to have amassed 40-lifetime earnings credits. You can earn four credits per year, with each credit requiring a minimum amount of earnings from your work. Last year, you earned one credit for each $1,510 earned in a year, this year it’s $1,640. To earn the full four credits in 2023, you’ll need to earn at least $6,560.
Rising Earnings Tax and Income Limits Higher Earnings Tax Limit
Speaking of the maximum earnings limit, that cap of $160,200 also applies to how much income you’ll be taxed on for Social Security. That is up from last year’s ceiling of $147,000. Any income above that amount isn’t subject to the 7.65% FICA tax — the Federal Insurance Contributions Act that finances Social Security and Medicare. So, in 2023 someone making $60,000 pays FICA on 100% of his paychecks, while someone making $250,000 pays FICA on just 64% of his earnings.
Early Filers Get Higher Income Limits
If you file to receive benefits before you reach your full retirement age (between 66 and 67 years old), your payments are reduced under the retirement earnings test. If you didn’t hit full retirement age in 2022 but started claiming benefits, the SSA withheld $1 in benefits for every $2 in earned income above $19,560, or $1,630 per month. This year, the test limit rises to $21,240, or $1,770 per month.
Earnings Cap for Disability Benefits Also Rises
Social Security benefits aren’t paid only to retirees — they also go to support disabled workers. However, anyone earning more than a certain rather low-income amount can’t qualify for benefits. Non-blind disabled workers will lose their benefits once they earn more than $1,470 a month this year, up from $1,350 in 2022. For blind disabled workers, that cap goes from $2,260 in 2022 to $2,460 this year.
If, however, you’ll reach your full retirement age sometime this year, the SSA will hang onto $1 in benefits for every $3 in earned income but only for the months before your full retirement age. Last year, that limit was $51,960, or $4,330 per month. But for 2023, the limit increases to $56,520, or $4,710 per month.
Social Security in 2023 has a lot of changes, partially due to inflation. And it doesn’t hurt that Medicare premiums have declined, leaving more room for additional income in retirees wallets. If you are expecting Social Security benefits, it’s important that you check your status and what you are expecting back.
Tips for Retirement Planning
Saving is important but most people aren’t likely to stow away enough to last them through their golden years. Likewise, Social Security can help but it isn’t likely to sustain your current lifestyle. Instead, you will likely need your savings to grow through investments. For help with this, consider working with a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.Taxes can take a big chunk out of your retirement income, depending on where you live. To find out if you should relocate after you hang up your hat, check our story on the best states to retire for taxes.
The post “You Need to Know About These Major Social Security Changes in 2023” appeared first on SmartAsset Blog.