Social Security’s buying power has been declining for decades, but rarely have seniors felt it as much as they have this year. Record inflation has made pretty much everything more expensive, and that’s made life extremely difficult for those who have little to no personal savings to supplement their checks.
But there’s some good news coming in 2023. The government has announced a change that may help ease the pain for those who depend on Social Security, along with two others that will affect those who are still working. Here’s the scoop on all three of these big changes.
1. 8.7% cost-of-living adjustment
Social Security is getting an 8.7% cost-of-living adjustment (COLA) for 2023. The government issues COLAs every year to help Social Security keep up with inflation, and since inflation has been so high this year, the COLA is also extremely high.
The average check is expected to increase by $147 per month beginning in January, but some people might receive even more. Starting in December, the Social Security Administration will begin issuing notices to all beneficiaries listing their new monthly benefit amount for 2023. You can also view this in your my Social Security account beginning in early December.
2. More wages subject to Social Security payroll taxes
In 2022, only the first $147,000 a person earns is subject to Social Security payroll taxes. But this will rise to $160,200 in 2023. If you hope to achieve the maximum Social Security benefit when you retire, you’ll need to earn and pay taxes on at least this much.
But this won’t change things for most people. Those earning less than $147,000 per year are already paying Social Security taxes on all their income. Only high earners will have to pay extra next year.
3. Changing thresholds for the earnings test
The Social Security earnings test withholds money from seniors’ Social Security checks if they earn too much while under their full retirement age (FRA). That’s anywhere from 66 to 67, depending on your birth year.
In 2022, you lose $1 from your checks for every $2 you earn over $19,560 if you’ll be under your FRA all year. And you lose $1 for every $3 you earn over $51,960 in the year you reach your FRA if you earn this much before your birthday. These thresholds are rising to $21,240 and $56,520, respectively, for 2023.
Fortunately, money lost to the earnings test isn’t gone forever. When you reach your FRA, the government recalculates your benefit, and your future checks will be larger to make up for any lost amounts.
Don’t expect your buying power to change
These changes may alleviate some of the strain you’ve felt throughout 2022 as inflation has driven up costs. But they’re probably not going to change your lifestyle significantly. You’ll still have to budget carefully and, ideally, supplement your checks with income from a job or retirement savings to help you cover all your costs.