Increases in Benefits
Inflation has been a hot topic since the Fed started hiking rates last March to try and curb surging prices. The Fed’s efforts weren’t enough to stop the cost-of-living adjustment (COLA) of Social Security to get an 8.7 percent increase for 2023, which is one of the largest increases in benefits ever seen. For example, if you were receiving $1,000 a month from Social Security, you will now be receiving $1,087 a month.
In addition to the COLA boost, another item that could potentially increase one’s Social Security check is due to the Medicare Part B premiums being reduced from $170.10 a month to $164.90. Many retirees have this expense deducted from their Social Security checks, so this will slightly increase the amount one will receive from Social Security on top of the COLA bump.
Another positive change to Social Security is the maximum benefit one can receive at full retirement age (FRA). Last year, the maximum benefit was $3,345 a month, but the 2023 the maximum will be $3,627 a month, a $282 increase. If workers wait until age 70 to claim their retirement benefits, they can see a maximum benefit of $4,555 per month, which was previously $4,194. Most workers do not meet the criteria to receive the maximum benefit, for their 35 highest earning years would have to exceed the maximum taxable earnings.
Reduced Benefits Threshold Changes
The earliest a worker can claim the Social Security retirement benefit is when they reach age 62. But, if they are still working and have not reached their full retirement age, or they are receiving other types of Social Security benefits such as survivor and family benefits, there are certain restrictions. From the time a worker is under their full retirement age, every $2 that they earn above $21,240 will reduce their Social Security check by $1. The previous earnings limit was $19,560.
If you will reach full retirement age in 2023, every $3 that is earned above $56,520—which is higher than 2022’s $51,960—will reduce benefits by $1 until the month you reach full retirement age. The earnings test will then stop and the benefits that were previously withheld will begin to be paid back to you in your Social Security checks. One thing to keep in mind is that workers can also see an increase in the benefit amount that they will receive if those working years are in their top 35 highest-earning years, even if they are already receiving benefits.
For those that are earning Social Security’s disability benefits, there is a threshold that they cannot exceed if they want to continue to earn benefits. The threshold increased from $1,350 to $1,470 a month. If you are receiving disability benefits due to blindness, that threshold also increased from $2,260 to $2,460 a month.
Although the COLA increase, Medicare premium decrease, increased earnings limit, and maximum benefits are all highly favorable changes, one that won’t be liked as much is the change to the amount of wages that are subject to the Social Security Tax. Social Security is funded by a 12.4 percent tax on earnings, which is normally split between employee and employer, unless you are self-employed, in which case you would pay the full tax. The amount of earnings subject to that tax was $147,000 in 2022, but with rising it has been increased to $160,200. Any amount above that threshold will not be subject to the Social Security side of your FICA tax.
The final change to Social Security is that it’s become harder to qualify for it. If you didn’t know, to qualify for benefits, you need 40 credits (unless it’s for disability which can range from 6 to 40 credits depending on what age you became disabled). You can earn up to 4 credits per year, so in 10 years you will have reached the full 40 credits to qualify for retirement benefits. To earn each credit, you must now make $1,640, which is up from the previous $1,510. This means that you would need to earn $6,560 in 2023 to earn all 4 credits this year.
Social Security is a significant source of income for many Americans. The COLA increase is great news for retirees, for the cost of such necessities as groceries and gas have put many in a tough financial situation. Retirees may have thought that they were in a comfortable financial position, but with the recent trends in inflation, it has many retirees second guessing their retirement plan, so the COLA raise is a welcomed one.