Social Security Retirees Will Face Historical Changes in 2023

Social Security can help make retirement more reasonable, but with inflation on the rise, living on a fixed income is becoming increasingly difficult.

Here’s what to expect in 2023.

Fortunately, help may be on the way. Next month, the Social Security Administration (SSA) will announce the cost-of-living adjustment for 2023. The COLA is a benefit increase designed to help Social Security keep its buying power.

Annual COLAs are common, and retirees can expect a minor increase in benefits most years. However, the adjustment for next year will be historic, with recipients receiving a significantly larger-than-average boost.

What will the COLA be in 2023?

We won’t know the actual COLA until October, as the SSA will wait until September inflation data is out before making its pronouncement.

Based on the latest consumer price index (CPI) statistics from the Bureau of Labor Statistics, nonprofit group The Senior Citizens League believes that the COLA for 2023 might be approximately 8.7%. The average retiree will get a monthly rise of almost $144.

The COLA typically rises by 1% to 3% each year. Beneficiaries earned a 5.9% boost this year, one of the highest in recent history, and a COLA of 8.7% would be the highest since 1981.

Other ways this may affect your benefits

A record-breaking COLA entails more than just a monthly rise in benefits. The yearly COLA impacts numerous areas of Social Security, and you may notice a few modifications in 2023:

Increased maximum benefit amount: In 2022, the maximum monthly Social Security benefit is $4,194. However, because this figure fluctuates yearly to account for cost-of-living changes, a higher COLA equals a more significant maximum benefit in 2023.

Raised the maximum taxable earnings limit: If you haven’t retired yet, the maximum annual income subject to Social Security taxes is $147,000. This limit increases yearly due to inflation, and therefore it will most likely increase following next year’s COLA. This implies that higher-income people will have to pay more taxes.

A higher earnings limit: If you continue to work after filing for Social Security and haven’t achieved your full retirement age (FRA), your benefits may be lowered if your earnings exceed the yearly earnings limit. That maximum will be $19,560 annually in 2022 (assuming you are still under your FRA). However, with a greater COLA comes a larger earnings ceiling, which means you may make more without being penalized.

Increased spousal and divorce benefits: The COLA applies to more than simply retirement benefits. Other forms of Social Security payments, such as spousal benefits, divorce benefits, or Supplemental Security Income (SSI), will also be increased in 2023.

In 2023, retirees and those planning to retire can expect many changes due to the COLA.

How to get ready for the COLA next year: The new COLA won’t go into effect until January 2023, and there’s nothing you need to do. The modifications will take effect automatically, so you will not be required to apply for the raise.