Whether you’re still working or have recently retired, Social Security will likely play a significant role in helping you live comfortably during your golden years.
This year, Gallup conducted a nationwide poll of nonretired and retired workers to determine their current or anticipated level of reliance on Social Security income. According to Gallup’s polling, 89% of present retirees rely on their benefit checks as a “major” or “minor” source of monthly income. When they put down the work hat for good, 84% of nonretired people expect to rely on Social Security money in some manner.
It’s critical to pay attention to all of the changes in this dynamic program since Social Security plays such an important role in so many Americans’ financial well-being. Although the full retirement age will not change in 2023, there will be three significant changes next year.
1. A historically high cost-of-living adjustment
The particularly high cost-of-living raise (COLA) that will be paid to Social Security’s more than 65 million beneficiaries in 2023, for example, is the most significant change. Consider a COLA as a sort of “raise” that beneficiaries receive with the intention of keeping them balanced with inflation. In other words, if the price of items and services increases, recipients should ideally see their benefits rise at the same rate.
The COLA for Social Security in 2023, according to Mary Johnson, a SS policy analyst at The Senior Citizens League (TSCL), could reach an icy 8.6 percent. This indicates that the typical retired worker will receive $145 more per month in 2019. In other words, it would be the biggest nominal-dollar increase ever, as well as the largest year-over-year percentage rise in COLA since 1981.
But keep the champagne on ice. In the next year, higher costs are likely to consume the majority or all of this increase in benefits.
2. Well-to-do employees are practically certain to have to pay more
Millions of American employees will also give up more of their earnings next year.
The 12.4% payroll tax on earned income (wages and salaries, but not investment gains) is by far the largest source of revenue for Social Security. This tax is divided down the middle if you work for a firm or someone else (6.2 percent each). The full 12.4 percent payroll tax falls on you as a self-employed person.
All earned income from $0.01 to $147,000 is taxed in 2022, with earnings over $147,000 being exempt. This upper limit on taxable earnings is linked to the National Avg. Wage Index (NAWI), which is predicted to rise considerably. The percentage boost in the NAWI determines what the max taxable earnings limit will change to from year to year.
Increasing the earnings tax cap would not have an impact on what most workers contribute to Social Security. It will merely make the rich open their pocketbooks a bit wider.
3. Maximum monthly compensation is set to climb
While high-income earners are anticipated to contribute more to Social Security in 2023, well-to-do retirees may anticipate a larger payment.
The maximum monthly Social Security payment that can be received at full retirement age this year is $3,345. That’s up $197 (from $3,148) from last year. With inflation and salaries rising, it’s likely that the maximum payout at full retirement age will rise considerably in 2023.
To be honest, only a small percentage of participants in the program receive the maximum monthly payment. Because three requirements must all be fulfilled. The retiree would have to fulfill these criteria:
- Wait until you reach full retirement age to collect compensation.
- A beneficiary’s monthly benefit is based on his or her 35 best-earning, inflation-adjusted years.
- Achieve or exceed the maximum taxable income limit for 35 years.