There haven’t been many significant modifications to the Social Security programme in the recent decade or so. Social Security, on the other hand, gets a lot of attention when there’s a lot of talk about inflation. This is due to the program’s extensive use of cost-of-living adjustments. In 2022, when Social Security retirement benefits were raised by 5.9 percent to account for rising inflation, many people discovered this for the first time.
The possible changes to Social Security in 2023 are beginning to take shape now that the first half of 2022 has passed. Current workers and retirees alike need to start preparing for some of these huge changes in 2023.
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Big Cost-of-Living Adjustment
In 2022, the Social Security cost-of-living adjustment will rise by 5.9%, the highest increase since the 7.4% increase in 1982, which took place over 40 years ago. Despite this, inflation in 2022 has only continued to rise, and it appears very probable that the COLA for 2023 will be considerably bigger. The increase might be as high as 8.6%, according to current inflationary trends, according to some analysts.
A variation of the CPI known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, is used by the Social Security Administration to measure inflation. The SSA bases its estimate of the following year’s COLA on the CPI-W figure at the conclusion of the third quarter.
Millions of U.S. seniors and others who receive Social Security benefits are on track for a big cost-of-living adjustment in early 2023 to catch up to the fiercest inflation in four decades. One group now estimates that the boost could be as high as 10.8%. CBS
— Michael Grossman (@MichaelArt123) July 15, 2022
Jump in Wage Base
Taxable income for Social Security purposes is calculated using a wage base. Employees who earn more than $147,000 in 2022 are exempt from the 6.2 percent OASI tax, which is used to support different Social Security programmes. Inflation will have a substantial impact on this value in the year 2023.
In 2021, the pay base was $142,800, but inflation was high enough to raise that number by 2.9%. In 2023, workers can expect another increase, which means that those with higher incomes will have to pay more into Social Security.
Increase in Maximum Benefit
A silver lining for high earnings exists despite widespread opposition to higher taxes. More of their income will be taxed, but a larger portion of their wages will also be credited to their Social Security pension in the future. Earnings that qualify for Social Security benefits rise in tandem with inflation.
Earning more money in your career can help you get a larger benefit because it increases your wage base, which is one of the most important criteria in calculating how much you get. Consequently, in 2023 the highest possible Social Security payout, which currently stands at $4,194, is expected to rise.
Rise in Earnings Limit
Social Security benefits may be temporarily lowered if you file for benefits before full retirement age and continue to work. But the limits on how much you can earn and prevent this benefit decrease are subject to annual revision, and we can expect another one in 2023.
Exempted from paying overtime in 2022 were employees making less than $1,630 per month, or $19,560 annually. Employees who made more than this threshold had their benefits cut by $1 for every additional $2 they earned. Those who reach full retirement age in 2022 will see their monthly income reduced by $1 for every $3 they earn above a separate annual income cap of $51,960, or $4,330. All employees are then exempt from any further benefit cuts.
The decreases in benefits are just for a short period of time. Upon reaching full retirement age, a worker receives supplemental payments to account for benefits previously withheld.
Changes Further Afield
The fundamental uncertainty facing Social Security is not what it will look like in 2023, but what it will look like in the mid-2030s. SSA expects the Social Security Trust Fund will be depleted at that date. Despite the fact that payroll taxes on existing workers will keep Social Security from ceasing to pay benefits, projections predict that benefits will fall to 80% of their current levels.
Despite the likelihood that a legislative solution will be found in the coming decade, employees and retirees alike should keep an eye on the situation.
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