The Social Security Administration (SSA) is making critical changes to benefits for the more than seventy million people who depend on its benefit programs in the coming year. Inflation continues to increase daily living costs with higher costs for gasoline, food, utility, rent, and mortgages. Yet real wages have been stagnant for decades to all but the highest-earning households, making basic living costs untenable for an increasing number of workers. Additionally, supply chain problems also increase the prices of available goods. The five changes to Social Security benefits in 2023 will relieve some of the current challenges that inflationary pressures present.

Cost of Living Adjustment (COLA)

Before 1975, Social Security benefit increases were set by legislation. In 1972, congress enacted the COLA provision, and automatic annual COLAs began in 1975. Since then, the COLA has set all SS public benefits increases. This adjustment figure is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The COLA ensures that the purchasing power of Social Security benefits programs does not erode due to inflation.

The COLA for 2023 is 8.7 percent and will appear as an increase in benefits payments. According to Bankrate, this adjustment will amount to a $146 increase for the average retired worker receiving Social Security benefits, increasing the average check from $1,681 to $1827. Couples, where both partners receive benefits, will receive an estimated payment increase of $238, increasing the average check from $2,734 to $2,972.

Maximum Taxable Earnings Increase

The Contribution and Benefit Base limit changes annually according to the national average wage index. Usually referred to as the taxable maximum for earnings, the base is $160,200 for 2023. This tax is a funding mechanism for Social Security benefits via the Old Age, Survivors, and Disability Insurance (OASDI), more readily known as the Federal Insurance Contributions Act (FICA).

W-2 workers have this tax deducted from their paychecks, and 1099 employees pay through the self-employment tax upon federal tax filing. The tax revenue supports the ASI Trust Fund for retirement and the DI Trust Fund for disability. The tax amount typically increases at a 6.2 percent rate meaning more of a worker’s income is subject to tax.

Maximum Social Security Benefit Increase

The maximum Social Security receivable benefit for workers retiring at full retirement age will increase from $3,345 to $3,627 in 2023. This maximum only applies to those who take their benefit at full retirement age, which is 67 for people born after 1960.

Maximum amounts will vary depending on those who retire before full retirement age as benefits reduce in that situation. The situation also applies to those who retire after the full retirement age, a strategy known as maxing out your benefit check. Bankrate cites three main levers to max out your Social Security income: working longer, earning more, and delaying your benefit. All of these strategies will provide you with the maximum retirement benefits.

Increase in Average Benefit for Spouses and Workers with a Disability

In 2023 beneficiaries’ average benefit amounts will increase across the board. This increase includes benefits for widows and widowers, and people with disabilities. According to Bankrate, the figures break out accordingly:

• The SSA will increase the average widowed mother with two children from $3,238 to $3,520.
• Widows and widowers, aged and living alone, will receive an average increase from $1,567 to $1,704.
• A worker with a disability and a spouse with one or more children will receive an average benefit increase from $2,407 to $2,616.

These increases are averages, and individual circumstances will vary. The SSA has a Fact Sheet that can help narrow down your specific situation and describe your benefit change amounts. The SSA will mail COLA notices throughout December to retirement, survivors, and disability beneficiaries, as well as SSI recipients and representative payees. To learn about your increases online, in early December, you can log into your personal My Social Security account in the Message Center under COLA notices. You can read more about the process here.

Social Security Adjusts Earnings Test Exempt Amounts

If you claim retirement benefits before full retirement age and are still producing income, Social Security will withhold some benefits from your check at a certain earned income threshold. The program calls this the retirement earnings test exempt amount, and it can claim a significant chunk of your benefits if you are still working.

In 2023, if you begin collecting Social Security before full retirement age, it is permissible to earn up to $1,770 per month ($21,240 annually) before the SSA will begin to withhold benefits. This withholding is $1 in benefits for every $2 above the limit. This rule applies even when you reach full retirement age but with much more forgiving terms. In 2023 at full retirement age, you can earn up to $4,710 per month ($56,520 annually) before the SSA withholds benefits at a rate of $1 in benefits for every $3 earned above the limit.

These five Social Security benefit increases for the year 2023 can help all beneficiaries, especially those living on fixed incomes, to combat rising prices brought about by increasing inflation and supply chain problems. The cost of living projections for 2023 may increase 2024’s COLA by around ten percent. Uncertainty in the world and financial markets will continue to affect retirement accounts and the lifestyles of aging Americans. The law enacted by Congress in 1972 for automatic increases to Social Security benefits using a COLA helps retirees, survivors, and people with disabilities live financially better lives.

If you are currently receiving Social Security benefits or applying for them, contact Rochester Elder Law for help to determine the best time to apply and how to maximize your benefits.