The 3 Biggest Social Security Changes in 2023 (and the 1 Thing That’s Finally Not Changing)

Whether you realize it or not, Social Security is an indispensable program that’s responsible for pulling close to 22.5 million people out of poverty each year. Nearly 9 out of 10 current retirees lean on their monthly payouts, to some varied degree, to make ends meet.

It’s also a dynamic program that’s constantly undergoing changes. Every year, during the second week of October, the Social Security Administration releases a fact sheet detailing the abundance of differences the program’s 65 million beneficiaries and close to 165 million working Americans can expect in the upcoming year.

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Even though we’re still a little over a month away from this year’s October 13 release date, confident prognostications can be made about the changes beneficiaries and workers can expect in 2023. What follows are the three biggest Social Security changes in 2023, as well as the one aspect of Social Security that’s finally not changing.

1. Social Security’s cost-of-living adjustment should be historically high

To begin with, Social Security recipients can expect the largest cost-of-living adjustment (COLA) in more than 40 years.

Think of COLA as the “raise” beneficiaries receive that’s designed to help payouts match the rising price of goods and services (i.e., inflation). You’ll note that “raise” is in quotation marks, which is to reflect that Social Security’s COLA isn’t a true raise, like what you’d get from an employer.

According to an August update from the nonpartisan senior advocacy group The Senior Citizens League (TSCL), Social Security’s 2023 COLA should land between 9.3% and 10.1%, depending on what the remaining third-quarter inflation readings show. That’s down from TSCL’s initial peak COLA forecast of 11.4% but would be the largest percentage increase to monthly benefits since 1982. The September inflation data, which’ll be released by the Bureau of Labor Statistics on October 13, will provide the final piece of the puzzle needed to calculate Social Security’s cost-of-living adjustment in 2023.

But before breaking out the champagne, consider that historically high inflation will likely eat up a significant portion of next-year’s payout increase.

Additionally, TSCL notes that the purchasing power of Social Security income has plunged 40% since 2000. This is due to Social Security’s inflationary tether, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), doing a poor job of tracking the costs that matter most to seniors. In other words, even a historically high COLA won’t make much of a dent in the loss of purchasing power for retired workers.

2. The rich are going to have to open their wallets a bit wider

The second significant change to Social Security in 2023 is one that’ll affect about 6% of the labor force.

Although Social Security generates income from three sources, the lion’s share of the program’s revenue comes from the payroll tax on earned income. By “earned income,” I’m talking about wages and salaries, but not investment income. Social Security’s payroll tax works out to 12.4% for the self-employed. Meanwhile, if you work for a business or someone else, you and your employer split the payroll tax down the middle (6.2% each).

In 2022, earned income between $0.01 and $147,000 is subject to this payroll tax. Approximately 94% of working Americans earn less than the maximum taxable earnings cap (the $147,000 figure), and therefore pay into Social Security on every dollar they earn. By comparison, about 6% of workers will bring home more than $147,000 this year. Every dollar earned above $147,000 is exempt from the payroll tax.

However, the maximum taxable earnings cap is governed by the National Average Wage Index (NAWI). With workers enjoying more wage power than they’ve had in a long time, the NAWI appears certain to rise on a year-over-year basis. This means high-earning workers can expect the maximum taxable earnings cap to increase in 2023. In short, the well-to-do will have to open their wallets a bit wider for Social Security in the upcoming year.

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3. Well-to-do retirees can expect a beefier maximum monthly payout

But it’s not all bad news if you’re a high earner over a long period. Though high earners are likely to owe more in payroll tax next year, well-to-do retirees are on track for a larger maximum monthly benefit.

For example, the maximum monthly benefit at full retirement age in 2022 is $3,345. (The full retirement age is the age at which a worker becomes eligible to receive 100% of their Social Security benefit.) In 2021, the maximum payout at full retirement age was $3,148/month. It jumped $197/month this year on the heels of high inflation and sizable wage growth. With inflation hitting a four-decade high of 9.1% in June 2022, it seems only logical to expect the maximum monthly payout to rise once more in 2023.

However, reaching this maximum monthly benefit requires three criteria to be met. An eligible beneficiary would need to:

Wait until their full retirement age to begin taking benefits
Work a minimum of 35 years (the Social Security Administration takes a worker’s 35 highest-earning, inflation adjusted years into account when calculating their monthly benefit)
Reach or surpass the maximum taxable earnings cap for all 35 years taken into account by the Social Security Administration

As noted, just 6% of workers hit the maximum taxable earnings cap each year, and an even smaller percentage will meet all three of the above criteria for the maximum monthly payout.

The full retirement age isn’t budging in 2023

On the other hand, one persistent Social Security change for the past six years officially comes to an end in 2023. The full retirement age, which stands at 67 years for anyone born in 1960 or later, won’t be changing again without congressional action.

Back in 1983, when Social Security’s asset reserves were running on fumes, Congress passed and President Ronald Reagan signed the last true overhaul of the program. The Amendments of 1983 featured core elements from both political parties. It introduced the taxation of Social Security benefits, increased the payroll tax on working Americans over time, and instituted a gradual escalation to the full retirement age over a nearly four-decade time frame.

When the Amendments of 1983 became law, Social Security’s full retirement age was 65 years. Between 2000 and 2005, the full retirement age increased by two months per year. From 2006 through 2016, the full retirement age remained at 66 years. But over the past six years (2017 through 2022), the full retirement age rose, once again, by two months per year, ultimately hitting 67 years this year for anyone born in 1960 or later.

Without some form of bipartisan overhaul of Social Security, it’s unlikely the program’s full retirement age will change anytime soon.

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