Many retirees on fixed incomes have had a difficult year. Rising costs, a volatile stock market, and fears of a probable recession have many older Americans concerned about their financial future.
But it’s not all bad news. The year 2023 will bring increased Social Security payments and cheaper Medicare expenditures.
The following are four things to look forward to in 2023 for those nearing or currently in retirement.
Social Security payments are increasing in size.
If you get Social Security, your check will rise by 8.7% in January, which is the most significant cost-of-living adjustment in four decades.
That’s an additional $147 in your pocket on average every month.
Of course, the record cost-of-living adjustment (COLA) is due to inflation. Everything from groceries to housing is getting more expensive, so an extra 8.7% may not seem too much.
What distinguishes this year is that the growing COLA will not be gobbled up by rising Medicare Part B rates (more on that shortly).
Furthermore, even if inflation begins to fall next year, seniors will continue to benefit from their increased Social Security payments – at least until October 2023, when the new COLA is calculated.
Medicare premiums are decreasing.
The Part B premium for Medicare seniors will be reduced next year for the first time in a decade.
In 2023, the regular Medicare Part B premium will be $164.90 per month, down from $170.10 in 2022. The Part B deductible is also decreasing.
The combination of increased Social Security benefits and reduced Medicare Part B premiums is fantastic news for seniors.
In most years, growing Medicare expenses consume Social Security COLAs. (Mostly, retirees’ Part B premiums are taken from their Social Security income.) That implies more money in your pocket, which is good news in these times of rising inflation.
The good news, however, comes with a caveat: The $5.20 reduction in Part B rates for next year is only a fraction of the $21.60 rise seniors will face in 2022.
Contribution limits for retirement accounts will be increased in 2023.
Is retirement on your horizon? Increased retirement account contribution limits will be available in 2023.
Because of rapid inflation, the IRS is raising contribution limits on 401(k)s and IRAs faster than ever before. From $20,500 in 2022, the maximum for 401(k), 403(b), and most 457 contributions will rise to $22,500 in 2023. IRA contributions will increase by 8.3% from $6,000 in 2022 to $6,500 in 2023.
These new limitations are especially useful to people over 50 trying to catch up on their retirement funds. For individuals 50 and older, the catch-up contribution maximum for 401(k)s is increasing from $6,500 to $7,500 yearly.
In addition to your usual contribution limit, the catch-up contribution maximum for IRAs is $1,000 each year.
Now Is an Excellent Time to Save
Interest rates continue to rise as the Federal Reserve works to rein in inflation. This makes getting a mortgage or auto loan more expensive, but higher interest rates help save money.
Many retirees seek a secure location to keep their money. Perhaps you’re selling your property to downsize and don’t want to risk investing the money. Perhaps you’re taking mandated minimum withdrawals from your retirement accounts and don’t mind making a little more money with a secure investment.
There’s no doubt that next year will be a fantastic year for financial savings. There is a record high in interest rates on high-yield savings accounts, money market accounts, and certificates of deposit. Interest rates reached 3.75% to 4% in November and are expected to reach 4.5% by spring. That means in 2023; you may earn even more money on your money.
Consider the following: Many high-yield savings accounts provide 3% or greater interest rates. You were lucky to obtain 1.5% in 2021. CDs are also enjoying better rates, particularly at online financial institutions. In November 2022, the average rate on a one-year CD was around 1.1% at traditional banks and as high as 3.75% at internet banks and credit unions.
Savers have another tool in their arsenal: federal government Series I bonds. I bonds are one of the most secure investments you can make. They are inflation-indexed, and the variable rate resets every six months. On November 1, the I bond rate was reset at 6.89%, a decrease from its previous high of 9.62%. The new rate is in effect until May 1, 2023.
The overall rate is decreasing, but there is some good news. The Treasury Department set a new fixed rate of 0.4% on November 1, the first time it has been over 0% since May 2020.
If you purchase an I bond from the US Treasury Department between now and the end of April 2023, you may lock in that 0.4% fixed rate for the life of the bond — and it will be computed in addition to whatever the future variable inflation rate is.
I bonds can be a reliable strategy for retirees to safeguard their money against inflation. You can acquire up to $10,000 in I bonds each calendar year.
You must retain them for at least a year, and if you cash out your I bonds one to five years after purchase, you will lose three months’ interest.
High inflation has made it difficult for many retirees in 2022, but the good news is coming. If you want to safeguard your nest egg from growing prices, talk to a financial adviser or specialist who can help you develop a specific approach.