2023 is already here! This means that things will start to change. Some changes we can make ourselves, like new year's resolutions. But other changes, like Social Security, we can't control. It's important to stay up-to-date on these changes so we are prepared for retirement.
Overview of Upcoming Changes to Social Security in 2023
The Social Security Administration is changing how Cost of Living Adjustments are done starting in 2023. Currently, the COLA is an annual increase in benefits that is based on the rate of inflation. Under the new system, COLAs will be based on the Consumer Price Index for the Elderly instead of the Consumer Price Index for Urban Wage Earners and Clerical Workers. This change should result in higher annual increases for those receiving Social Security benefits.
Change #1: Increase in Full Retirement Age
The full retirement age is the age when you can start getting your full Social Security benefits. The original full retirement age was 65, but it has been gradually increasing because people are living longer. If you start collecting your benefits before the full retirement age, your benefits will be reduced by a fraction of a percent each month before your full retirement age.
In 1983, the government passed a law that said people had to wait longer to get money from Social Security. The full retirement age was slowly raised over time until it reached 67 years old. This slow gradual increase began in 2003 and will be completed by 2022. It affects those born after 1960 and those who are at least 48 years old today.
The change in the full retirement age can have both good and bad effects. If you retire early, you will get less money than people who wait until they are the full retirement age. But this change also gives retirees more time to save money so they can have enough to live on during their later years. Additionally, with longer lifespans come higher medical costs which could potentially be offset by having more time to save money or working longer before retiring fully.
If the full retirement age goes up, that means people will have to wait longer to get all their Social Security money. But it also means they can choose when to retire later and have more money for things they need.
Change #2: Changes to Cost-of-Living Adjustments (COLA)
The Consumer Price Index (CPI) is used to figure out how much Social Security benefits will go up or down each year. The CPI measures the prices of things people buy often, like food and gas. The Social Security Administration uses the CPI when they figure out how many benefits will change each year. How much the cost of living goes up next year depends on how much prices go up this year. If there is a small increase in prices, then the cost-of-living increase will be small too. This can be a problem for people who get most of their money from Social Security because their money might not buy as much next year as it does this year. For example, if a person's cost-of-living allowance is low one year, the next year's payment might not be enough to make up for what was lost because prices went up. This can be a big problem for those living on fixed incomes, as they may find it hard to pay for things they need like food and housing.
Some people think that Social Security benefits do not increase enough to match the rising prices of things. To try to fix this problem, Congress has proposed new laws that would give people more money each year and make sure that the benefits keep up with inflation. It is not yet known if these proposals will be successful.
Change #3: Delayed Claiming Credits for Spouses and Survivors
The Social Security Administration (SSA) offers a delayed claiming credit to spouses and survivors of deceased workers. This means if they wait until after their full retirement age to begin receiving payments, they will receive a higher monthly benefit. For example, if a surviving spouse begins drawing benefits at age 66, he or she will receive 100 percent of the worker’s primary insurance amount. But if the surviving spouse waits until age 70 to begin receiving payments, he or she will get 132 percent of the worker’s primary insurance amount. This increase in payment can mean thousands of extra dollars in income for the surviving spouse throughout his or her lifetime.
If you are a widow or widower, you can get money from the government based on your deceased spouse's work. If you start getting money before you are old enough to retire, you will get 71.5 to 99 percent of what your spouse got. But if you wait until after you retire to start getting money, you can get up to 100 percent of what your spouse got.
Delaying claiming credits can help you during tough economic times and provide additional income in retirement. Many people rely on Social Security as their main source of income during retirement, so delaying claiming credits can provide additional financial stability when it is needed most. Furthermore, delaying claiming credits is beneficial for families who have lost an income earner due to death – it allows them additional time to adjust and make necessary changes to meet their financial obligations without depleting other sources of income prematurely.
Change #4: New Rules Around Earnings Cap Increase
The new rules about how much money people can earn are important because they will have a big impact on businesses and individuals. The idea behind the new rules is to let people earn more money, but also to make sure that people who make a lot of money pay more taxes.
For people, this will mean they can make more money without having to pay as much in taxes. For businesses, this is good because it provides more money for things like investments or employee raises. It also encourages businesses to hire more people, since they may be able to afford it with increased earnings caps. This should help reduce unemployment levels because businesses may be more willing to give people jobs if they know their employees can make more money without paying a lot in taxes.
2022 Cap: $147,000
2023 Cap: $160,200
If you make less money than the cap, you may get paid more because employers will want to attract better talent. If you make more money than the cap, your income may go down because you will have to pay more taxes. But there are some exceptions, like if you give money to charity or invest in certain types of retirement accounts. The new rules will help people who make less money. This could also encourage businesses to start hiring more employees.
With these changes coming up in 2023, it’s more important than ever to stay informed. People nearing retirement will want to clearly understand how their situation may be affected by all the new provisions. It's also important for those already receiving benefits or who will soon apply for them, as their circumstances can affect how new rules are applied. Finally, individuals not yet collecting Social Security should know how all of these new changes may impact their future benefits. For the most up-to-date information on social security, check out the link below to ensure you're informed and up-to-date is essential if you don't want all of the hard work you've put into planning your retirement to go wasted due to not knowing about recent changes.
This page is a publication of Fiat Wealth Management, LLC. The firm is registered as an investment adviser and only conducts business in states where it is properly registered/notice filed or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.
The information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation.
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