With inflation so high this year, it’s 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 increases in benefits due to expected Cost of Living Adjustment (COLA) increases.
Here are four of the main changes.
Another significant increase in COLA
The SSA uses a calculation known as the Consumer Price Index for Urban Wage and Clerical Workers (CPI-W), to determine the COLA figure. The CPI-W is even higher than the consumer price index (CPI), at 9.8 percent over the past year.
This has led the Senior Citizens League (SCL), a non-partisan group advising seniors on financial matters, to believe that the COLA increase in 2023 could reach 10.5% for 2023. 2022 saw a 5.9% increase from 2021, the highest in 40 years. If the value proposed by the SCL is used, it would break previous records.
The ceiling of salaries taxable to Social Security will increase
The the wage base limit is the upper limit of what workers’ income will be taxed for social security. For 2022, this value rises to $147,000. This means that income above this limit is not taxed for social security and the extra money does not enter into the calculation of pensions.
High inflation means this ceiling will have to increase for fear that the increase in wages will push the elderly above the current ceiling.
Increase in the full retirement age
Each individual has a “full retirement age”, which can vary depending on the year of their birth. Regardless of your full retirement age, you can start collecting Social Security retirement benefits at age 62, but choosing to defer payments will net you a larger monthly payment when you decide to claim the support.
For 2023 the the full retirement age will increase further. People born in 1956 have a full retirement age of 66 years and four months. However, people born in 1957 or later have a full retirement age of 66 and 6 months. For those born in 1958 it is 66 years and 8 months, and those with a birthday in 1959 will have to wait until they are 66 years and 10 months to qualify for their standard benefit. Anyone born in 1960 or later will have to wait until age 67 to receive their full pension.
Changes to the amount that can be earned when collecting benefits
If you are under 67, there is a limit to how much you can earn in a year before your benefits are reduced. For 2022, the annual income limit is $19,560. If you earn above this threshold, the SSA will reduce your benefit payments $1 for every $2 you earn.
For this year, your earnings limit before penalties will be $51,960. If you earn above this limit after reaching full retirement age, the SSA will deduct $1 in benefits for every $3 you earn above a different limit. However, only income before the month in which you reach full retirement age is taken into account.
Although it has not yet been announced, high inflation means that this ceiling will have to be raised similarly to the basic wage limit.