It’s no secret that Social Security has been around for many years and some aspects of the program haven’t changed in decades. But in October, we’ll learn about some key Social Security changes that will take effect in 2023.
Why October? Many of the year-over-year changes in the program are dependent on third quarter inflation data. As we are still in the middle of the third quarter of 2022, we do not yet have a complete data set to work with. But once those numbers come in next month, the Social Security Administration can announce some key program updates. Here are four changes to watch out for.
1. Next year’s COLA
Each year, Social Security recipients are entitled to a cost-of-living adjustment, or COLA, the purpose of which is to help seniors maintain their purchasing power as inflation drives up the cost of living. life. Because inflation has soared this year, the 2023 COLA could be the biggest increase for seniors in decades. While we can’t determine that number yet, it’s fair to assume it will be significantly higher than the 5.9% COLA seniors achieved at the start of 2022.
2. Next year’s salary cap
Social security is largely financed by receipts from social security contributions. But high earners do not pay social security contributions on all of their income. Instead, there is a salary cap that determines the amount of income subject to these taxes each year.
Currently, the salary cap is $147,000, so earnings beyond that point are not taxed for Social Security purposes. Next year, however, we can count on an increase in this salary cap, so high earners should be prepared to pay.
3. Limitations of next year’s revenue review
Seniors who collect Social Security and work at the same time risk seeing some of their benefits withheld if they have not yet reached full retirement age. But whether that happens depends on income.
Each year, an income-based limit is set to indicate to seniors how much income they can earn from employment before benefits are drawn. This year, the salary cap is $19,560. For those reaching full retirement age in 2022, it’s $51,960.
Just as the salary cap is likely to increase in 2023, the earnings test limit is also expected to increase. But it’s actually a good thing for seniors, as it gives them the chance to earn more money before their benefits are affected.
4. Next Year Work Credit Earnings Requirement
Social Security does not automatically pay a benefit to all older people. To be eligible, workers must accumulate 40 work credits, the value of which may vary from year to year.
Right now, a single work credit is worth $1,510 in earnings. Next year, the value of a work credit is likely to increase, which means it could become more difficult for part-time workers to get the credits they need to qualify for benefits.
Incidentally, the maximum number of work credits that can be obtained in a single year is four. It is therefore possible to go several years without income and still be eligible for a monthly social security benefit down the line.
How will these changes impact you?
You don’t have to be on Social Security to be impacted by program changes. If you have a higher income, for example, a higher salary cap could cause you to pay more to Social Security.
That’s why it’s so important to stay on top of updates like these. You may have decades to go before you get benefits, but that doesn’t mean you shouldn’t keep an eye on the changing rules of the program.