Social Security is a crucial source of income for millions of retirees. Retirees may be more reliant on their benefits these days than in the past.
Since the beginning of the year, the stock market has been highly unpredictable. As a result, many retirees have been relying more on their Social Security payments to allow them to leave their investments alone and avoid making losses.
Meanwhile, each year, Social Security payments are increased based on the inflation rate. The goal of COLAs is to ensure that seniors have adequate purchasing power as inflation rises and their costs rise.
This year’s inflation has reached an almost unendurable level, leaving seniors to wonder what kind of raise their Social Security payments will receive in 2023. The good news is that we’re getting closer to knowing the answer to a crucial question. The disappointing news is that seniors will have to wait another two months for answers.
Several changes are coming
The yearly cost-of-living adjustments (COLAs) for Social Security are calculated using data from the Consumer Price Index for Clerical Workers and Urban Wage Earners, which tracks changes in the cost of consumer goods and services. We won’t have a complete set of third quarter inflation numbers until after the quarter is over, even though we know that living costs have increased across the board this year.
COLAs for Social Security are usually given in the first half of October, and there should be no exception this year. Seniors should anticipate a 2023 COLA to substantially exceed the 5.9 percent increase that benefits received going into 2022.
In addition to COLA data, the SSA frequently makes major adjustments in October, which have an impact on both retirees and employees. For one thing, it should disclose modifications to its yearly earnings test limit, which applies to seniors who work and receive Social Security benefits at the same time.
In October, the SSA is expected to make an announcement regarding wage limitations for 2023. Every year, the maximum amount of wages eligible for Social Security taxation is limited. This year’s limit was $147,000. Workers should anticipate a higher wage cap in 2023, but we won’t know how much it will rise until October.
Stay tuned for important news
Clearly, substantial information is on the way for Social Security in the coming months. While seniors await news of a higher COLA, they may and should take steps to stretch their present benefits as inflation rises. That could imply saving money strategically or finding other ways to generate cash such as working part-time.
Active people who are still working may also consider methods to lower their tax burden in the new year, since it’s reasonable to expect that the wage cap will rise once again. Those with higher salaries are most likely to be affected by a wage cap increase. But those wanting to avoid a significant tax penalty might begin experimenting with various tactics such as contributing as much money as possible into retirement plans and HSAs, which exempt as much income from taxes as feasible.