When it comes to financial support for older Americans, Social Security plays a vital role. With tens of millions of people getting regular monthly checks from the program, there are many for whom financial planning in retirement would look a lot different without Social Security.
As the end of the year approaches, Social Security recipients need to be prepared for some big changes in the program. Some of them are unquestionably positive, but others could have a more mixed impact on your finances. Read on to learn more about these must-know facts about Social Security in 2023.
1. Seniors will get an 8.7% cost of living adjustment
One key aspect of Social Security is that every year, it adjusts its payouts for inflation. The amount of the cost-of-living adjustment, or COLA for short, changes each year based on figures from the Consumer Price Index. Seniors will see their higher payments arrive in January.
The Social Security Administration provided information about exactly how big an impact the COLA will have on typical participants. The average benefit among all retired workers will rise by $146 to $1,827 per month after the COLA takes effect. Couples where both spouses receive benefits should see a $238 average COLA boost to $2,972, while a widowed parent with two children could see a $282 increase to $3,520. A surviving spouse without children could see a benefit rise of $137 to $1,704 per month.
The 8.7% COLA will be the biggest in more than 40 years, reflecting the high inflation seen recently. As a result, seniors will be pleased to see the boost, but it really only starts to make up for the higher costs they've paid throughout 2022.
2. Social Security's maximum benefit is rising
Those who retire in 2023 will have the opportunity to earn a higher maximum Social Security benefit than those who retire in 2022. Those retiring at the earliest eligible age of 62 will see a maximum of $2,572 per month in benefits, up $208 from 2022.
Gains for others will depend on when they retire. The biggest boost will be available for those who wait until age 70 to retire in 2023, with the maximum jumping $361 to $4,555 per month. Those retiring at 65 will see the maximum rise by $286 to $3,279, while gains of $266 and $240 will apply for those retiring at 66 and 67 respectively.
3. Payroll taxes for Social Security will rise for big earners
Social Security gets most of its money from payroll taxes, and there's going to be a big jump in the maximum amount of tax per worker in 2023. The wage base determines the maximum amount of earnings on which the government collects payroll taxes, and that number got a $13,200 boost to $160,200 for 2023.
The net result is that employees making above the $160,200 amount will have an extra $818.20 withheld from their paychecks during 2023. Those who are self-employed could have to pay twice that amount in extra tax, or $1,636.40. For most workers, though, the change won't matter, because only a small fraction of Americans make anywhere near the $160,200 maximum wage base.
One thing is staying the same -- finally
Next year will also bring an end to a long series of changes that have generally resulted in lower benefits for older Americans. The full retirement age (FRA) has slowly been going up, but it hit 67 for those born in 1960 or later. As a result, those who are filing for early benefits at age 62 in 2023 will have the same FRA as their year-older peers in 2022. Nevertheless, they'll still potentially see a 30% haircut in their age 62 benefits compared to what they'd receive if they waited to claim until their FRA five years later.
Knowing the latest changes to Social Security can ensure you get every penny you have coming to you. For the most part, seniors will appreciate what's changing with the program in 2023, but you'll want to track your Social Security payment to make sure you understand everything you can about your hard-earned benefits.
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