2023 is poised to bring several important changes to the Social Security program. Some will only affect those already receiving benefits, while others affect those paying Social Security taxes on their incomes today.
Here’s a closer look at some of the key changes you can expect — three of which you may be excited about, and two you may not like as much.
3 Social Security changes to celebrate
Here are some of the Social Security changes you can look forward to in 2023.
1. A historically high cost-of-living adjustment (COLA)
Every year, the Social Security Administration issues a cost-of-living adjustment (COLA) to help the value of your Social Security checks keep pace with inflation. The official 2023 COLA won’t be announced for a few more weeks, but it’s expected to be the highest in decades due to the high rate of inflation this year.
This means seniors may see a significant boost to their Social Security checks, though it probably won’t increase their buying power. Still, a COLA will be welcome for those who have struggled with the rising costs of nearly everything this year.
2. Higher maximum benefit for top earners
In 2022, the largest possible Social Security benefit is $4,194 per month. This figure is also set to jump next year, meaning top earners will rake in quite a bit more than they do right now. But not everyone will qualify for these large checks.
In order to claim the $4,194 benefit this year, you had to earn the equivalent of $142,800 in 2022 dollars for at least 35 years and delay claiming until age 70. In 2023 and beyond, you’ll need an even larger income during your working years to claim the highest possible benefit.
3. Higher thresholds for the Social Security earnings test
The Social Security earnings test withholds money from seniors claiming benefits before their full retirement age (FRA) if their income exceeds certain thresholds.
In 2022, a worker who will be under their FRA for the entire year loses $1 for every $2 they earn over $19,560. If they reach their FRA this year, they only lose $1 for every $3 they earn over $51,960 if they earn this much before their birthday. But it’s not gone forever. The government increases these individuals’ benefits once they hit their FRA to make up for what it previously withheld.
The thresholds for withholding due to the Social Security earnings test also change from year to year. So it’s very likely that you’ll be able to earn more money in 2023 before the government takes anything out of your checks. And if you’re already at your FRA, this doesn’t matter because the government won’t withhold any money from your checks due to your earnings.
2 Social Security changes you may not like
The following Social Security changes may not be as exciting as the ones above, but they’re still important to know about.
1. Rising income requirements to qualify for Social Security
In order to qualify for Social Security retirement benefits, you must earn the equivalent of 40 credits throughout your career. In 2022, a credit is defined as $1,510 in earnings, and you can earn a maximum of four credits per year.
The definition of a Social Security credit changes over time, so in 2023, you’ll have to work a bit harder in order to claim your credits. But this may not bother you if you’re earning more than a few thousand dollars per year or if you’ve already earned 40 work credits.
If you’re not sure whether you qualify, you can create a my Social Security account to find out. Once you’ve set up your account, your main dashboard page should tell you whether you’re eligible for benefits once you turn 62.
2. A higher ceiling on Social Security taxes
In 2022, you only pay Social Security taxes on the first $142,800 you earn that year. This is likely going to increase in 2023, so high earners will owe more taxes to the government.
But these high earnings also translate to a larger benefit when you sign up for Social Security later, so it’s not all bad. And it won’t make any difference to you if you’re already earning less than $142,800. In that case, you’ll still owe Social Security taxes on all your income.
These changes may not all affect you right now, but keep them in mind anyway. Many of the things discussed above happen annually, so just because they don’t affect you this year doesn’t mean they won’t in the future.
— Kailey Hagen
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Source: The Motley Fool