The Census Bureau calls Social Security the nation’s most important antipoverty program. Social Security benefits provide monthly income to millions of retired workers, spouses, survivors, and disabled workers. In fact, about 1 in 5 Americans received a Social Security check each month in 2021, and those benefits kept more than 26 million people out of poverty.
Given the impact Social Security has on financial wellbeing, it is critical for beneficiaries (and future beneficiaries) to stay informed on annual changes to the program. Here are four important changes coming to Social Security in 2023.
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1. The largest cost-of-living adjustment (COLA) since 1982
Social Security benefits get an annual cost-of-living adjustment (COLA) to help beneficiaries keep up with inflation. Of course, rising prices have dominated the headlines during the past year, as the consumer price index (i.e. a widely used measure of inflation) rose at its fastest pace in four decades, putting many Americans in a difficult financial position.
To rebalance the scales, Social Security benefits will get an 8.7% COLA in 2023. That ranks as the largest raise for beneficiaries since 1982, and the fourth-largest raise since COLAs became automatic in 1975. Using data from November 2022, I have calculated how the COLA in 2023 will impact the average monthly benefit for different types of beneficiaries.
Retired workers: $1,823.46 (an increase of $145.94)
Spouses: $902.52 (an increase of $72.23)
Survivors: $1,446.67 (an increase of $115.78)
Disabled workers: $1,482.97 (an increase of $118.69)
2. A bigger maximum benefit for retired workers
The Social Security benefit paid to retired workers depends on income and age. Specifically, a formula is applied to the inflation-adjusted earnings from a worker’s 35 highest-paid years, and the output of that formula is their primary insurance amount (PIA). The PIA is the benefit the worker would receive if they started Social Security at full retirement age (FRA). Workers that claim Social Security early are penalized with a reduced benefit, and workers that delay Social Security are rewarded with an increased benefit.
The PIA formula is adjusted annually to account for changes in general wage levels, which causes the maximum benefit to rise each year. The chart below shows the maximum monthly benefit payable to retired workers at different ages in 2023.
