2023 Will Bring 3 Big Changes to Social Security. Here’s What Retirees Must Know.

Approximately 90% of Americans age 65 and older currently receive Social Security benefits, and those benefits account for about 30% of their total income. That makes it critical for retirees (and soon-to-be retirees) to stay informed. And three big changes to Social Security are on the horizon.

Here’s what you should know.

1. Huge cost-of-living adjustment (COLA)

Cost-of-living adjustments (COLAs) are meant to keep Social Security benefits in line with inflation. Given the extraordinary levels of inflation throughout the first seven months of 2022, retirees are on pace for a huge COLA in 2023. In fact, the adjustment could clock in between 9.3% and 10.1%, according to The Senior Citizens League. That would be the largest COLA since 1981.

However, the Social Security Administration (SSA) measures inflation and calculates COLAs using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Specifically, CPI-W data from the third quarter of the current year is compared to CPI-W data from the third quarter of the previous year. The increase (if any) becomes the COLA for the following year.

With that in mind, the official COLA cannot be calculated until CPI-W data is available through September (i.e., the end of the third quarter). Retirees should expect an announcement from the SSA in mid-October.

2. Higher retirement earnings limit

You can still work while receiving Social Security retirement benefits, but a portion of your payment will be withheld if you are under full retirement age (FRA). The extent of the reduction depends on how far under FRA you are and the annual earnings limit.

In 2022, individuals under FRA for the full year can earn up to $19,560 without any reduction. But beyond that, $1 in benefits will be withheld for every $2 in income above the limit. For example, an individual under FRA that makes $21,560 during the year (i.e., $2,000 over the limit) would see their benefit reduced by $1,000.

Similarly, individuals under FRA for a portion of the year can earn up to $51,960 without any reduction. But beyond that, $1 in benefits will be withheld for every $3 in income above the limit. For example, an individual that reaches FRA in October but makes $57,960 (i.e., $6,000 over the limit) in the first nine months of the year would see their benefits reduce by $2,000.

The official 2023 earnings limits will not be published until October, but the limits have increased at an annual pace of 2.9% over the past decade. If the next increase falls in line with the average, the low limit would rise from $19,560 to roughly $20,135, and the high limit would rise from $51,960 to $53,485.

3. Larger maximum benefit

You need two things to receive the maximum Social Security retirement benefit. First, your wages must meet (or exceed) the maximum taxable income for 35 years — that figure was $147,000 in 2022. Second, you must delay benefits until age 70. Individuals who met those qualifications and claimed Social Security this year currently receive $4,194 per month.

The maximum benefit for new retirees tends to increase each year, due to changes in the national wage index, and it has risen at an annualized pace of 2.5% over the past decade. If that trend holds, newly minted retirees who meet the above criteria — 35 years of wages that meet or exceed the maximum taxable limit, and delaying benefits until age 70 — would see the maximum benefit rise to roughly $4,300.

That said, inflation (including wage inflation) has run hot this year, so the maximum benefit could rise much more. In fact, it climbed 7.6% between 2021 and 2022. Another bump like that could push the maximum benefit up to $4,500 in 2023.

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