Max Out Earnings Through Full Retirement Age
The SSA calculates your benefit amount based on your earnings, so the more you earn, the higher your benefit amount will be. Some pre-retirees look for ways to increase their income, such as taking on part-time work or generating business income. Others, however, unaware of the impact on benefits, may scale back on their work or semi-retire, which can lower their Social Security income.
“Money earned after age 60 isn’t indexed, which means that income-earning in your 60s can replace a year in which there was a zero or a year in which you had lower earnings,” says Marguerita Cheng, CFP®, CRPC®, RICP, CDFA, CEO of Blue Ocean Global Wealth, Gaithersburg, MD.
Earnings above the annual cap$142,800 in 2021 and indexed to inflation each yearare left out of the calculation. Your goal should be to maximize your peak earning years, striving to earn at or above the cap.
How The Cola Is Tied To Inflation
The COLA applies to about 70 million Social Security and Supplemental Security Income beneficiaries.
The change is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.
The SSA calculates the annual COLA by measuring the change in the CPI-W from the third quarter of the preceding year to the third quarter of the current year.
Benefits do not necessarily go up every year. While there was a record 5.8% increase in 2009, the following two years had 0% increases.
“For seniors, because they spend so much on health care, those years were difficult,” Adcock said.
A similar pattern may happen if the economy goes into a recession, according to Johnson.
Here’s When The Social Security Increase For 2023 Will Be Announced
The White House predicted seniors could see $140 more on average in their Social Security checks in 2023.
Dan Avery
Writer
Dan is a writer on CNET’s How-To team. His byline has appeared in Newsweek, NBC News, The New York Times, Architectural Digest, The Daily Mail and elsewhere. He is a crossword junkie and is interested in the intersection of tech and marginalized communities.
Each year, Social Security benefits are recalibrated with a cost-of-living adjustment, or COLA. Retirees’ checks went up 5.9% this year, reflecting ongoing economic instability. The bump for 2023, though, is expected to be even larger — potentially the largest since 1981.
The adjustment is based on the US Bureau of Labor Statistics’ Consumer Price Index, the change in prices for goods and services, for the third quarter of the year before. The CPI hit 8.5% in July and 8.3% in August.
In a briefing today, White House Press Secretary Karine Jean-Pierre cited analysts who forecast an increase of $140 per month, on average, equal to about 8.5% more than the average monthly check for 2022.
For more on Social Security, learn how much next year’s increase could be, how benefits are calculated and how to access your benefits online.
Read Also: Social Security Office Of Disability Adjudication
Since Social Security Is Adjusted For Inflation Why Do People Say Retirees Live On Fixed Incomes
Its really not an accurate description.
People who receive Social Security simply dont live on fixed incomes, said Alicia Munnell, director of the Center for Retirement Research at Boston College. They have this wonderful benefit that increases over time when consumer prices rise.
That doesnt mean Social Security is adequate to meet the needs of retirees. For example, the Elder Index, which measures the cost of living for older Americans, shows that for a single person who rents a home, the average benefit covered just 68 percent of basic living expenses in 2021 housing, food, transportation and health care. For a married older couple, the comparable figure was 81 percent.
Social Security does not and will not cover necessary expenses as long as benefit increases are tagged to the cost of living and nothing more, said Jan Mutchler, a professor of gerontology at the University of Massachusetts Boston, which created the index.
Census Bureau data released last month showed that the rate of poverty increased among older Americans, despite improvement among all other age groups. The poverty rate among Americans 65 and older rose to 10.3 percent in 2021 from 8.9 percent in 2020. Looked at another way, 5.8 million older Americans were below the federal poverty level in 2021 a figure that increased by 950,000 last year.
Social Security Bill Would Give Seniors An Extra $2400 A Year Here’s How It Would Work
Seniors and other Social Security recipients in the U.S. are being hit hard by inflation, which has outpaced increases in their benefits this year. Now, some lawmakers have a plan to boost Social Security payments by $2,400 per recipient annually, while also shoring up the program financially.
The Social Security Expansion Act was introduced June 9 by Rep. Peter DeFazio, a Democrat from Oregon, and Senator Bernie Sanders, an Independent from Vermont. The plan comes after the Social Security Administration earlier this month said Americans will stop receiving their full Social Security benefits in roughly 13 years without actions to shore up the program.
Social Security recipients receive one cost-of-living adjustment, or COLA, each year, which is based on inflation and is supposed to keep their benefits in line with rising prices. But this year, beneficiaries are seeing their purchasing power wane as inflation overtakes their latest COLA increase of 5.9%. Inflation in May rose 8.6% from a year ago, a four-decade high that pushed up the cost of food, shelter, energy and other staples.
The new bill would seek to lessen the strain on people collecting Social Security by boosting each recipient’s monthly check by $200 an annual increase of $2,400.
Here’s what to know about the Social Security Expansion Act.
Don’t Miss: Social Security Office In Miami
Social Security Benefit Changes Coming In 2023 Will Help Retirees
President Joe Biden speaks about his administration’s plans to lower prescription drug costs and protect Social Security and Medicare, Saturday, Nov. 5, 2022, at Jones Elementary School in Joliet, Ill.
Inflation has been sky-high over the last year, so its a good thing that the Social Security Administration is boosting its cost of living adjustment for benefit checks in 2023. Its just one of many changes announced by Social Security recently.
Here are some key changes to Social Security that are happening next year:
Cost of living adjustment rises. The Social Security Administration has announced that benefit checks will rise 8.7 percent in 2023. The 8.7 percent adjustment will amount to a $146 increase in monthly benefits for the average retired worker on Social Security, beginning in January. Specifically, the average check for retired workers will increase from $1,681 to $1,827.
Maximum taxable earnings going up. In 2022, the maximum earnings subject to Social Security taxes was $147,000. In 2023, the maximum earnings will increase to $160,200, meaning more of a workers income will be subject to the tax.
Maximum Social Security benefit also set to increase. The maximum Social Security benefit for a worker retiring at full retirement age will also increase in 2023, from $3,345 to $3,627. This maximum applies to those retiring at the full retirement age, which is 67 for anyone born after 1960.
Of course, those are averages, and individual circumstances will vary.
Will Social Security Disability Benefits Increase For 2023
Are you currently getting social security benefits including disability benefits? Every year, there is the potential for your benefits to increase, and we may have some real insight into 2023. Will Social Security Disability Benefits Increase for 2023? Tabak Law can provide some information on your potential for a raise in SSDI income.
Also Check: Portsmouth Ohio Social Security Office
Avoid Social Security Tax
If you are planning on supplementing your retirement income by working after you start receiving Social Security benefits, you need to be aware of the tax consequences of increasing your income. Anywhere from 50% to 85% of your benefit payment can be subject to federal taxes.
To determine how much of your benefits will be taxed, the IRS will add your nontaxable interest and half of your Social Security income to your adjusted gross income . If that total amounts to $25,000 to $34,000 for single filersor $32,000 to $44,000 for joint filersup to 50% of your Social Security income is subject to tax. When that amount exceeds $34,000 for a single filer or $44,000 for joint filers, up to 85% of your benefits are subject to taxes.
You may be able to avoid paying taxes on Social Security income by considering ways to spread out your income from various sources so as to prevent any increases that could trigger a higher tax.
“Many investors have a ‘tax honeymoon’ period between retirement and age 72. They have no earned income and are not required to withdraw from their IRAs yet. If they have a nonqualified account, they can withdraw tax-free principal. In this situation, it is quite possible that Social Security benefits will be tax-free,” says James B. Twining, CFP®, wealth manager, Financial Plan, Inc., Bellingham, WA.
How Is Cola Calculated
The cost-of-living increase is purely a mathematical formula though it wasnt always that way, said National Academy of Social Insurance CEO William Arnone.
Social Security was established in the 1930s, but Congress first increased Social Security payments in 1950, and continued to do so every few years for more than two decades, according to the SSA. In 1972, President Richard Nixon signed a rule into law that the yearly increase be tied to consumer prices.
Since then, the Bureau of Labor Statistics compares the average consumer price index for workers for July, August and September of the current year to the average number for the previous year. That percent change then becomes the annual increase in Social Security payments, according to the Social Security Administration. COLAs cant be negative if theres a decrease in the percent change, there will be no COLA.
Inflation had already started to creep up by the end of 2020, which is why payments jumped 5.9 percent in 2021. As prices soared in 2022, a large cost-of-living adjustment was expected before it was confirmed Thursday.
Also Check: Social Security Taxable Benefits Worksheet 2021
How Is The 2022 Social Security Cola Calculated
As mentioned, any COLA adjustment is driven by changes in the wage earners consumer price index. National average prices are used, not regional. SSA also calculates the percent change between average prices in the third quarter of the current year with the third quarter of the previous year. The reason the fourth quarter isnt used is because that number is typically not available from the U.S. Bureau of Labor Statistics until mid-January, and the SSA has to make its adjustment on January 1.
When Will Social Security Run Out Of Money
The trust fund that pays Social Security benefits to retirees, disabled people and their dependents will be depleted by 2035, according to the Social Security Board of Trustees June report. Thats one year later than the Board projected last year since more Americans returned to work, boosting Social Security revenue collected through federal payroll taxes. At that time, the trust fund would be sufficient to pay about 80% of scheduled benefits.
But the new COLA increase will likely move that date up since it will drain more money from the trust, said Johnson.
And if the economy falls into recession next year, as many economists are predicting, that will exacerbate the insolvency date since 90% of Social Security funding comes from payroll taxes.
A recession would be a crisis for Social Security, she said.
Elisabeth Buchwald is a personal finance and markets correspondent for USA TODAY. You can follow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here
Recommended Reading: Social Security Office In Toledo Ohio
Consumer Prices Have Spiked This Year Meaning A Higher Social Security Cost
Getty Images
High inflation this year means that Social Security benefits will increase about 8.8% next year. That will be the largest cost-of-living adjustment since 1981. That is also higher than the COLA for 2022, which was already a high 5.9%.The estimated average monthly Social Security benefit payable in January 2023 will increase from $1,657 in 2022 to $1,803. The average monthly benefit for a couple who are both receiving benefits will rise $242, from $2,753 to $2,995. And the maximum Social Security benefit for a worker retiring at full retirement age will increase from $3,345 per month to $3,639, an additional $294.
Also, more of workers income will be subject to the Social Security tax in 2023. The Social Security tax will apply to roughly the first $153,000 of earnings, up about $6,000 from $147,000 in 2022.
All of the above are rough estimates. The Social Security Administration will determine the final numbers for 2023 on October 13.
COLAs are calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers . If prices dont increase and even fall, the COLA is zero. That happened in 2010 and 2011, as the economy struggled to recover from the Great Recession, and again in 2016, when plummeting oil prices swept away any chance of a COLA for that year.
Eliminated The Stretch Provision
The SECURE Act removed the stretch provision, which previously allowed non-spousal beneficiaries to withdraw the required minimum distributions from an inherited IRA until the account was depleted. Non-spousal beneficiaries must withdraw all of the funds in 10 years following the death of the original account holder, a requirement put in place on Jan. 1, 2020.
Don’t Miss: Free Legal Aid Social Security Disability
When Does The Change Take Effect
For those seniors receiving Social Security benefits, the Administration will pay the new amount starting January 2023. For those who receive SSI, those increases will start with the Dec. 30, 2022, payment. Those receiving benefits payments should receive a letter in December providing the exact amount of their increase. It is also possible to log into your My Social Security account to see how much your payment will be.
Social Security Increase For 2023 Could Reach Double Digits
Based on the new inflation numbers released for June 2022, CNBC estimates that the cost-of-living adjustment will be 10.5% for 2023.
This would be the highest increase in 42 years.
A 10.5% COLA would amount to a $175.10 increase to the average monthly retirement benefit of $1,668, according to the CNBC report.
With that increase, the average Social Security benefit will rise to $1,843 a month.
In comparison, the CNBC estimates from the past two months indicated the COLA for next year might be 8.6%.
This shows how the rising inflation is leading to higher and higher COLA predictions for 2023.
Social Security recipients got a 5.9% cost-of-living increase in 2022, which was also a 40-year high.
COLA for 2023 will be announced in October 2022 and take effect in January 2023.
You May Like: Social Security Administration Chattanooga Tennessee
Has There Always Been An Annual Social Security Cola
The first automatic annual adjustment was paid in 1975, the result of legislation passed by Congress in 1972. Before that, COLAs were awarded periodically by lawmakers, generally in large amounts. For example, there was a 10 percent increase in 1971, a 20 percent increase in 1972 and two increases in 1974 totaling 18 percent.
The move to an automatic COLA reflected bipartisan agreement, said Nancy Altman of Social Security Works and a historian of the program.
Some progressives didnt like the lag effect, where inflation could be rising but people might wait two years to get an adjustment, and some conservatives didnt like the politics, where there might be a COLA that was larger than the actual rate of inflation, she said.
William Arnone of the National Academy of Social Insurance thinks the large COLA for 2023 could become a political issue this fall. Democrats could try to leverage it, especially with the one-two punch of the Part B premium going down, he said.
By contrast, he notes that two Republican senators, Ron Johnson of Wisconsin and Rick Scott of Florida, have suggested that Social Security and Medicare should be eliminated as federal entitlement programs and instead should be approved annually by Congress.
It could be a sleeper issue in the midterm elections, Mr. Arnone said.
President Biden signaled as much last month when he warned that Republicans posed a threat to Social Security and Medicare, citing the proposals made by the two senators.
Yes.
Seniors Could See Their Benefits Go Up Even More Next Year
In late 2021, seniors on Social Security got some pretty good news — their benefits would be going up by 5.9% in 2022, representing their largest raise in decades. Meanwhile, the start of 2023 has brought about severe spikes in inflation. And that could set the stage for an even higher bump in benefits come 2023.
Also Check: Social Security Administration Tampa Fl
What Is Social Security Cola
The Social Security Administration is required by law to prevent inflation from eating into the buying power of the nearly 69 million Americans who receive benefits.
To do this, the SSA uses a Social Security COLA formula based on the consumer price index to adjust payouts every January.
Since prices typically rise, payouts typically rise also. If prices ever fell, payouts would stay unchanged until prices catch back up again.
The COLA is calculated from the third quarter Department of Labors Consumer Price Index .CPI-W.
Social Security Increase And 3 More Ways Inflation Is Actually A Good Thing For Your Wallet
As inflation continues to impact millions of Americans, it might be difficult to name anything good about it. Fuel oil prices are still up 19.8% more as of October, per the latest Consumer Price Index report released Nov. 10. Were paying 12.4% more for groceries than we did this time last year. And soon, those winter heating bills will start appearing and may provide sticker shock when homeowners and renters see that costs are up 20% versus 2021s cold season.
Find: 5 Things You Must Do When Your Savings Reach $50,000
Yet there are some silver linings when it comes to the record inflation weve all been experiencing, per Howard Hook CPA, CFP with wealth management firm EKS Associates. As he said, High inflation does positively affect certain items that will save people money.
Here are some of the benefits tied to inflation that can impact your wallet:
You May Like: Social Security Appointment Name Change