Three significant changes are coming to Social Security in 2023 and may factor into your financial plan for the coming year. A recent article from The Motley Fool, “3 Changes to Social Security in 2023 You Probably Didn’t Know,” says checks will look much different in 2023.
Record inflation levels have made everything from gas to groceries more expensive and a severe challenge for seniors dependent upon Social Security. However, change is coming soon.
The Cost-of-Living Adjustment (COLA) for 2023 will be a whopping 8.7%. This adjustment happens every year, but this is one of the most significant increases in many years. In December, the Social Security Administration started sending notices to all beneficiaries listing their new monthly benefit. The new number can also be seen on the My Social Security website.
There’s also been a change to the amount you can earn and have to pay in Social Security payroll taxes. In 2022, only the first $147,000 was subject to Social Security payroll taxes. This will increase to $160,000 in 2023. If your goal is to achieve the maximum Social Security benefit upon retirement, you’ll need to earn more and pay more taxes on at least this much.
This only impacts high-income earners. Most people who earn less than $147,000 are already paying Social Security taxes on their income. Only high-income earners will have to pay extra next year.
The third significant change is to thresholds for the earnings test. The Social Security earnings test withholds money from Social Security benefits if the taxpayer is receiving benefits and earns too much before reaching their full retirement age (FRA). Depending on the birth year, this could include people between 66-67.
In 2023, you lose $1 from each check for every $2 earned over $19,560 if you’re under your FRA for the entire year. You also lose $1 for every $3 you earn over $51,960 in the year you reach FRA if you make this much before your birthday.
These thresholds will increase in 2023, from $19,560 to $21,240 and from $51,960 to $56,520.
The money lost to the earnings test doesn’t evaporate. Benefits are recalculated when the taxpayer reaches their FRA, and future checks are larger to make up for any lost amounts.
Your buying power won’t change that much. However, the increases are hoped to relieve some of the financial pain of inflation. Budgets will still be tight for those who don’t have other sources of income. A part-time job might be needed to provide additional income. If they exist, retirement accounts will need to be tapped.
Reference: The Motley Fool (Dec. 3, 2022) “3 Changes to Social Security in 2023 You Probably Didn’t Know”’