Retirees Should Plan for Significant Changes in Social Security Benefits in 2023.

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Retirees Should Plan for Significant Changes in Social Security Benefits in 2023.

The Social Security Administration recently increased benefit checks by 8.7%, one of many changes.

The Social Security Administration (SSA) is increasing its cost of living adjustment (COLA) for benefit checks in 2023, which is good news given the recent spike in inflation. It’s just one of several changes announced recently by Social Security.

These significant Social Security changes, along with the information you need to be aware of, will take effect in 2023.

Social Security will undergo these changes in 2023.

Since more than 70 million people rely on one of Social Security’s benefit programs, annual changes to the program and its payouts are always eagerly awaited. However, in recent years, benefit checks that were significantly higher have been extremely rare. The extra money will assist seniors and others in making ends meet due to the rising inflation in 2022.

1. Increases in the cost of living adjustment (COLA).

According to the SSA, benefit checks will increase by 8.7 percent in 2023, which is a significant increase even compared to the already high adjustment of 5.9 percent for 2022. In actuality, the 2023 COLA represents the largest increase since 1981 (11.2%).

Starting in January, the 8.7 percent adjustment will result in a $146 increase in monthly benefits for the typical retired worker receiving Social Security. To be more precise, the average retirement check will rise from $1,681 to $1,827. When both members of a couple receive benefits, the estimated payment rises by $238, from $2,734 to $2,972.

For urban wage earners and clerical workers, the SSA has linked cost-of-living adjustments to the Consumer Price Index since 1975. (CPI-W). To calculate the COLA, the SSA contrasts the third-quarter CPI-W of the current year with the third-quarter CPI-W of the preceding year. The COLA is modified based on the variation in CPI-W from one year to the next.

2. Increase in the maximum taxable earnings

The top income level subject to Social Security taxes in 2022 was $147,000. In other words, employees who pay into the system are taxed at a rate of 6.2 percent on wages up to this amount. More of a worker’s income will be subject to tax in 2023 because the maximum earnings will rise to $160,200. The increase in American average wages is what led to this adjustment.

3. There are plans to increase the maximum Social Security benefits.

The maximum Social Security benefit for an employee retiring at full retirement age will also rise in 2023, from $3,345 to $3,627, as anticipated. This maximum applies to retirees who reach full retirement age, which is 67 for those who were born after 1960.

For those who leave the workforce before reaching full retirement age, the maximum will be different because their benefits will be lower. The same is true for those who choose to retire after reaching full retirement age, a move that will maximize your benefit payment.

4. The average benefit for disabled employees and spouses is also rising.

In 2023, all benefits—including those for widows, widowers, and the disabled—will see an increase in average value. Here’s how those numbers break down:

  • According to the SSA, the average benefit for a widowed mother of two children will increase from $3,238 to $3,520.
  • Benefits for elderly widows and widowers living alone will increase from $1,567 to $1,704.
  • $2,407 to $2,616 will be added to the benefit for disabled workers with a spouse and at least one child.

Of course, these are averages, and situations will differ for each person.

5. The Social Security Administration adjusts the earnings test exempt amounts.

Social Security will withhold a portion of your benefits if you apply for retirement benefits before reaching full retirement age if your income exceeds a certain level. It’s what the program refers to as the retirement earnings test exempt amounts, and it can take a sizable chunk out of your benefits if you’re still employed. Here’s how it’ll work in 2023.

If you begin receiving Social Security benefits before reaching full retirement age, you have until 2023 to earn up to $1,770 per month ($21,240 annually) before the SSA begins deducting benefits at a rate of $1 for every $2 over the cap. The highest monthly exempt salary in 2022 was $1,630 ($19,560 annually).

This rule still applies in the year you reach full retirement age, but only for the month you reach full retirement age and with much more lenient conditions. Before benefits are deducted in 2023, you can make up to $4,710 per month ($56,520 annually), with $1 in benefits being deducted for every $3 over the limit (instead of every $2). The ceiling in 2022 was $4,330 per month ($51,960 annually).

6. As an added bonus, some Medicare premiums will be reduced.

The majority of retirees participate in both Social Security and Medicare, despite the fact that they are separate programs, and this nationalized healthcare system underwent a particularly significant change in 2023.

The cost of a monthly premium for Medicare Part B will drop from $170.10 in 2022 to $164.90 in 2023. The total number of people enrolled in Medicare, according to the Centers for Medicare and Medicaid Services (CMS), was close to 64 million in October 2021.

In conclusion

It shouldn’t come as a surprise that Social Security experienced one of its biggest benefit adjustments ever given the enormous level of inflation the American economy has experienced over the past year. However, other levels and thresholds have also been modified as part of the program to take into account the rapidly rising inflation rate.

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