What four big changes should seniors expect of their retirement benefits next year?
2023 will see a host of changes to Social Security though many happen every year and are totally expected.
With inflation so high this year, it should come as no surprise that there will be changes to Social Security payments in 2023. These will take the form of increasing caps on certain limits, as well as benefit increases due to the Cost of Living Adjustment (COLA) increases that are expected.
Here are four of the main changes.
Another large COLA increase
The SSA uses a calculus known as the consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), to determine the COLA figure. The CPI-W is running even higher than the Consumer Price Index (CPI), at 9.8 percent over the last year.
This has led the Senior Citizens League (SCL), a non-partisan group advising senior citizens on financial matters, to estimate that the 2023 COLA increase could be as high as 10.5 percent for 2023. 2022 saw an increase of 5.9 percent ver 2021, the highest in 40 years. If the value proposed by the SCL is used, this would smash prior records.
The ceiling for taxable wages for Social Security will rise
The wage base limit is the upper limit of what workers’ income will be taxed for Social Security. For 2022, this value stands at $147,000. What this means is that income above this limit is not taxed for Social Security and the extra money is does not go into calculations for pensions.
High inflation means this cap will need to increase lest increasing wages take seniors over the current cap.
Increased full retirement age
Each individual has a ‘full retirement age’, which can vary based on the year in which they were born. Regardless of your full retirement age you can start receiving Social Security retirement benefits at 62, but opting to defer the payments will bag you a larger monthly payment when you do decide to claim the support.
For 2023 the full retirement age will be rising again. People born in 1956 have a full retirement age of 66 years and four months. However, people born in 1957 or after have a full retirement age of 66 and 6 months. For those born in 1958, it’s 66 years and 8 months, and those with a 1959 birthday will have to wait until they are 66 years and 10 months old to be eligible for their standard benefit. Anyone born in 1960 or after is going to have to wait until 67 years of age to receive their full pension.
Changes to amount that can be earned while collecting benefits
If you are under the age of 67, there is a limit on how much you can earn in a year before your benefits are reduced. For 2022, the annual earning limit is $19,560. If you earn over this threshold, the SSA will reduce your benefits payments by $1 for every $2 you earn over it.
For this year, the limit on your earnings before penalties will be $51,960. If you earn over this limit after reaching full retirement age, the SSA will deduct $1 in benefits for every $3 you earn above a different limit. However, this only counts earnings before the month you reach your full retirement age.
While it has yet to be announced, high inflation means this cap will have to be raised in similar fashion to the wage base limit.