The Social Security Administration (SSA) doesn’t make massive changes very often. Most Social Security beneficiaries receive their monthly check without thinking too much about the program’s future. However, current and soon-to-be retirees are going to see some big changes in 2023. In fact, these changes are likely to be the biggest changes to Social Security in the last 40 years. Not only will these changes affect Social Security retirement benefits, but some of the changes will have effects on other types of Social Security benefits as well. So, just what is changing in 2023? Keep reading as we give you all the details.
8 Major Social Security Changes For 2023
Some big changes will happen to Social Security in 2023, and not all for the better. While beneficiaries will be happy with some of the changes, there are others that may impact them negatively. Here are the major shakeups occurring within the Social Security program in 2023.
— Large Cost-Of-Living Adjustment Of 8.7%
Social Security recipients will see the largest cost-of-living increase in 40 years. You likely already know that the Social Security Administration uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to gauge inflation. The increase in the consumer price index is measured at the end of the third quarter, and any increase in the index is passed on to Social Security beneficiaries through a cost-of-living adjustment.
With inflation so high, Social Security recipients will see the largest increase in benefits in the last 40 years. The increase will begin next year in 2023. This means that retirees will see an 8.7% increase in their monthly payments. This Social Security COLA increase will really help these individuals maintain their standard of living with the current soaring prices of goods and services.
— Increase In Social Security Tax Limit
You may already know that you pay a 6.2% Social Security tax on your earnings and that your employer matches the same amount. Those who are self-employed must pay the entire 12.4% payroll tax on their own. However, there is a limit to the amount of tax that is due. In 2022, you are only required to pay taxes on your first $147,000 of earnings. Any money that you earn in excess of this limit will not be subject to Social Security taxes.
Unfortunately, the tax limit is set to increase by a significant amount in 2023. The first $160,200 of your earnings will be subject to the Social Security tax. This means that your Social Security tax bill could be almost $1,000 higher in 2023 than it was in 2022. While the tax rate will remain the same, more of your earnings will be taxable, and the overall amount of tax due could be much higher.
— Increase In Maximum Benefit Payment
There is a maximum Social Security benefit, and this amount will be getting a boost in 2023. This increase goes hand-in-hand with the benefit increases that will be seen across the board for Social Security recipients. In order to get the maximum Social Security benefit, you need to max out your earnings for at least 35 years of your work history. You also need to wait until age 70 to start your benefits.
In 2022, you can receive as much as $4,194 if you meet the criteria above. However, that amount should increase to $4,559 in 2023. Not only does the Social Security cost-of-living adjustment raise average benefit payments, but it also increases the maximum amount that you can receive as well.
— Earnings Limits For Beneficiaries Will Rise
Many retirees receiving benefits from Social Security continue to work to make ends meet. You might already know that working can have a negative impact on your benefits. If you make more than the earnings limit before reaching full retirement age, your benefits will be reduced accordingly. In 2023, that earnings limit will increase. This means that you will be able to earn more money without any reduction in your benefits.
In 2023, you will be able to earn up to $21,240 before full retirement age without any reduction in your benefits. During the year in which you reach full retirement age, the earnings limit will increase to $56,520. This is more than a $4,000 increase from 2022. Once you hit full retirement age, there is no limit to the amount you can earn while still receiving your full Social Security benefit.
— Decrease In Medicare Part B Premiums
It’s not often that the cost of things goes down, but that is happening in 2023. Medicare beneficiaries will see a decline in their Part B premium amounts for 2023. While the decrease is small, it is certainly better than nothing! For most enrollees, Medicare Part B premiums will drop by about $5 per month. The standard Part B premium in 2023 will be $164.90. Last year’s monthly premium for 2022 was $170.10. Remember that you might pay more for your premium if you are a high earner. Those with high taxable earnings are subject to higher Part B premiums.
Since most Social Security recipients are enrolled in Medicare, this reduction in healthcare costs will have a positive impact on their lives. When living solely on a retirement income, any extra help in your monthly budget is a big plus.
— Increase In Full Retirement Age
Americans continue to work later in life, and they may have to keep doing that as the Social Security retirement age continues to increase. If you decide to retire in 2023, Social Security considers the full retirement age to be 67 years old for anyone born in 1960 or after. If you were born between 1943 and 1954, you could start your full benefits at age 66.
You might be wondering, “Can I retire early and start my Social Security benefits?” The answer is yes, but that answer comes with a big caveat. Starting your benefits early will lead to a reduction in your monthly Social Security check. If you start your benefits upon reaching full retirement age (FRA), you will receive 100% of your primary insurance amount. However, you will see roughly a 1% reduction for each month that you start early. You can start your benefits as early as age 62, but you will only receive about 70% of your primary insurance amount. Also, remember that this reduction lasts for the rest of your life. So, you could lose out on a lot of benefits by starting them just a few years early. When performing retirement planning and deciding when to start your benefits, you should consider getting the help of a financial planner.
— Social Security Disability Payments Increase
Disabled workers will also see an increase in their monthly benefits as well. The Social Security COLA increase not only applies to retired workers but also helps disabled workers as well. In 2023, disabled workers will see a much larger increase than normal. Once again, these individuals will see their largest increase in 40 years. Their monthly benefits will increase by 8.7%, which can be a huge help to individuals and families who are struggling to make ends meet. SSDI recipients should be very excited about the larger payout, as this extra money will help stretch their budgets further each month. Similarly, Supplemental Security Income (SSI) recipients should also see an increase in their benefits as well.
— Local Social Security Offices Are Reopened
During the COVID-19 pandemic, all local Social Security offices were closed to walk-in traffic. For a few months, the offices were closed altogether. Eventually, the offices reopened for appointments only. Appointments were reserved for only certain types of issues, so you may still not have been able to get an appointment to visit your local office.
However, in 2023, all local Social Security offices will be fully reopened to the public. While you can still schedule an appointment at your local office for some issues, appointments are no longer necessary to visit the office. You will be able to walk into the office and wait to speak with a Social Security representative.
Possible Social Security Changes In The Future
Now that you know what is happening with Social Security in 2023, you might be wondering about other changes on the horizon. You may have heard in the news that the Social Security trust funds are running out of money. which has people asking asking, “When will Social Security run out of money?” While the situation might not be as dire as the media portrays, some long-term changes will likely be necessary to keep the program operating. Here are a few changes that could be in store for the future of Social Security.
— Increase In Social Security Tax Rate
The OASDI tax rate has held steady at 6.2% for many years. However, a rise in that rate is one of the possibilities on the table when discussing the future of Social Security. An increase in the rate would lead to more taxes being collected and placed into the Social Security trust funds. Additional money is needed to continue to fund the program, and a higher tax rate could help produce the extra funds. While no one knows what the new rate will be — or if it will even increase at all – an increase is one of the possibilities that could occur in the coming years.
— Larger Increases In Tax Limit
You probably already know that there is a limit to how much Social Security tax you are required to pay. Once your income hits a certain amount, no Social Security taxes are due on your income that is above the limit. Each year, that limit generally increases slightly to match the cost-of-living adjustment for the year. The limit for 2023 is $160,200. There are many people who make much more than this each year. Levying taxes on wages above the Social Security limit could generate a lot of income for the program. Many people have suggested a large increase in the Social Security tax limit, and this option is certainly on the table. In fact, this option may be the most likely of the three mentioned here.
— Further Increases In Retirement Age
Another possibility would be an increase in the age at which you gain eligibility for full retirement benefits. This age is already 66 or 67, depending on the year in which you were born. Raising the full retirement age beyond 67 years old would likely not sit well with many Americans, especially since this age was just raised recently. This particular option is not very likely to happen soon, but it is a possibility that it could occur in the long run.
The Bottom Line
Some significant changes are in store for the Social Security program in 2023. Beneficiaries will be happy about some of the changes, while not everyone will rejoice over all the changes. Larger benefit payments are a common theme, while more potential taxes might also be due next year. Long-term, even more Social Security changes might be necessary. Make sure you have good retirement savings on your own, so you don’t have to rely solely on Social Security. While no one knows exactly what changes will be implemented in the future, you can be certain that something will have to change for Social Security to continue operating.
Frequently Asked Questions
What changes are coming to Social Security in 2023?
Several changes are coming to Social Security in 2023. One of the most significant changes coming in 2023 is the large increase in benefit payments. The 8.7% COLA increase is the largest increase that Social Security has seen in 40 years. In addition to benefit increases, there will also be increases to the Social Security tax limit and earnings limit. Finally, local Social Security offices will be fully reopened to the public. Appointments are still available but are no longer required before your visit to your local office.
What is the Social Security Trust Fund?
The Social Security trust fund is the place where all the Social Security tax money is placed. There are actually a couple of different trust funds for Social Security. Money in these funds is also used to pay benefits to current beneficiaries. These trust funds are used to pay both retirement benefits and disability benefits.
How much does a Social Security increase cost taxpayers?
The amount of money that a raise costs taxpayers depends on the size of the raise. Since millions of Americans receive Social Security benefits, a large raise can cost taxpayers quite a lot of money. However, the Social Security program is funded through Social Security taxes collected from current workers. Payroll taxes are placed into the Social Security trust funds, and the money in these funds is used to pay benefits. The tax rate is not increased simply because of a Social Security raise.
What is the Social Security cost of living adjustment (COLA)?
The Social Security cost of living increase is an increase in benefits that recipients see as a result of inflation. Each year, the Social Security Administration examines the consumer price index to determine the rate of inflation. They will then adjust benefit payments to account for the increased cost of goods and services. The higher the inflation rate, the higher the increase in benefits will be. It should be noted, however, that benefits will never be reduced as a result of the COLA. If the cost of goods decreases, then there will simply be no change in benefit payments.