In September, more than 48 million retired workers received Social Security benefits, and yet there are many individuals who remain misinformed about the program.
For instance, a survey by Nationwide Retirement Institute shows that more than two-thirds of Americans don't know benefits increase largely based on inflation. The Social Security Administration (SSA) does indeed enact a cost-of-living adjustment (COLA) each year to try and help beneficiaries keep up with rising prices. In fact, after battling runaway inflation over the past year, beneficiaries will see the largest COLA in four decades in 2023. But a few other important changes are coming to Social Security next year.
Here's what retired workers need to know.
An 8.7% cost-of-living adjustment (COLA) for Social Security benefits
Scorching inflation hit the U.S. economy hard in the past year, driving up the cost of food, utilities, and medical care, among other necessary goods and services. Fortunately, Social Security benefits will get an 8.7% COLA in 2023 to offset the impact of rising prices. That will be the largest COLA since 1982.
In December, beneficiaries will receive a COLA notice by mail providing the exact details of their new benefit amount. The SSA estimates the average benefit paid to retired workers will rise by $146 to $1,827 per month in 2023. That means the average retiree will see an extra $1,752 over the course of the year.
A higher earnings limit for workers who receive retirement benefits
The SSA identifies any individual on retirement benefits as a retiree, but it is possible to keep working while receiving Social Security checks. That said, in addition to the permanent penalty for claiming Social Security early, workers claiming benefits prior to full retirement age (FRA) may receive a temporary benefit reduction based on their income.
The earnings limits typically increase each year based on changes in general wage levels. In 2023, the lower limit is $21,240, and the higher limit is $56,520.
Here's how that works: For beneficiaries under FRA for the entire year, $1 in benefits will be withheld for every $2 in earnings that exceed $21,240. But for beneficiaries who will attain FRA in 2023, $1 in benefits will be withheld for every $3 in earnings exceeding $56,520 prior to reaching FRA. In either scenario, this calculator from the Social Security Administration can provide an exact dollar amount.
A bigger maximum benefit for newly retired workers
The formula used to calculate Social Security benefits is adjusted annually to account for changes in general wage levels. That means the maximum benefit payable to newly retired workers increases yearly, but the actual amount also depends on the individual's age when they claim Social Security.
In 2023, newly retired workers who qualify for the maximum benefit and claim Social Security at FRA will receive $3,627 per month. That figure drops to $2,572 for those claiming benefits at age 62 and rises to $4,555 for those claiming benefits at age 70.
Of course, very few people actually qualify for the maximum benefit. To reach that threshold, workers must earn more than the maximum amount subject to Social Security payroll tax for at least 35 years. That figure was $147,000 in 2022, and only about 6% of individuals in the U.S. meet that criterion. Anyone can use the SSA's my Social Security portal to estimate their specific future benefits.
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