What are the Changes to Social Security in 2023 and how will those changes affect me?

Despite the past year’s financial challenges, there is good news in 2023 for Americans who receive Social Security benefits. High inflation prompted an 8.7% cost of living adjustment (COLA) in Social Security payments, the highest cost of living adjustment in 41 years. In 2023 Americans who receive Social Security benefits will see an increase in their monthly payments. People with disabilities, their spouses, and their children as well as those receiving Social Security Income (SSI) and retirees will see an increase in their payments. This increase is effective in January 2023 for people receiving Social Security disability income and retirement benefits and began on December 30, 2022 for those receiving SSI.

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  New Cost of Living Adjustment (COLA).

The purpose of COLA is to ensure that the purchasing power of Social Security and SSI benefits is not diminished by inflation. Cost of living is based on the Department of Labor’s Consumer Price Index (CPI-W) and determined by taking the average CPI-W reading from the third quarter of the current year (July – September) and comparing it with the CPI-W of the previous year. Inflation rises when CPI-W goes up and prices for goods and services increase. COLA helps offset these costs. If there is no increase in the Consumer Price Index, there is no increase in COLA. The cost-of-living increase in January 2023 is 8.7%, the highest increase since 1981.

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  Social Security monthly benefits will increase.

In 2023, the average monthly benefit for a disabled worker is expected to be $1,483 (up from $1364) and the average payment for a disabled worker, their spouse, and one or two children is estimated to be $2,616 (up from $2,407). The increase in monthly payments for retirees will depend on whether or not the beneficiary is covered by Medicare and if a monthly premium for Medicare Part B is deducted from their benefit, but the average monthly retirement benefit will increase approximately $146.

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In general:

	Before COLA	After COLA
All retired workers	$1,681.00	$1,827.00
Aged couple, both receiving benefits	$2,734.00	$2,972.00
Widowed mother and two children	$3,238.00	$3,520.00
Aged widow(er) alone	$1,567.00	$1,704.00
Disabled worker, spouse and one or more children	$2,407.00	$2,616.00
All disabled workers	$1,364.00	$1,483.00

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Payments to SSI beneficiaries will also rise with the average monthly payment for an individual increasing to $914 per month (up from $841 per month) and $1,371 per month for a couple (up from $1,261 per month).

Note that an SSI beneficiary’s resource limits (the amount a beneficiary’s countable resources are worth) do not change in 2023, remaining at $2,000 for an individual and $3,000 for a couple.

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  Substantial Gainful Activity (SGA) will increase.

The Social Security Administration updates the monthly earnings threshold known as Substantial Gainful Activity or SGA each year. SGA is the amount of monthly income a beneficiary can earn before Social Security benefits will cease and depends on the nature of a person’s disability. In 2022, SGA for a blind person was $2,260 per month; in 2023, and will increase to $2,460 per month. In 2023 a nonblind person can earn $1,470 per month (up from $1,350 per month in 2022). The threshold for a Trial Work Period or TWP will also increase. A Trial Work Period is an interval of time where a beneficiary attempts to return to work and earn some income, but may still collect Social Security benefits. The TWP for 2023 is $1,050 per month, an increase from $970 per month in 2021.

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  No changes in full retirement age.

Full retirement age or FRA is the age a person is eligible to collect 100% of their monthly Social Security retirement benefit and is determined by birth year. The last increase occurred in 2022 when full retirement age increased from 66 years and 10 months for those born in 1959 to 67 years for all people born in 1960 or later. Taking retirement before a person reaches FRA will permanently reduce the amount of their monthly retirement benefit, while waiting until FRA can increase the monthly benefit above 100%.

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  The maximum Social Security monthly retirement benefit increases.

Retired workers who retire at full retirement age will collect a larger retirement benefit in 2023. In 2022, retirement income was capped at $3,345 per month; in 2023, this monthly payment will increase to $3,627 per month, and further increase to $4,555 per month for those who wait to age 70 to begin collecting Social Security retirement benefits.

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To receive this maximum payment, a retired worker needs to satisfy three requirements:

1.    They must wait to full retirement age to claim benefits;
2.   They must have worked at least 35 years; and
3.   They must have reached or surpassed the maximum taxable earnings cap in each of the 35 years Social Security uses to calculate an individual’s retirement benefit.

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Only 6% of Americans made more than the maximum taxable earnings limit last year, meaning the vast majority of retired workers will not qualify for the maximum benefit.

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  Amount of earnings subject to Social Security payroll tax increases.

All earned income between $0.01 and $160,200 (up from $147,000 in 2022) will be subject to the Social Security payroll tax of 12.4%. Individuals who are employed split this tax with their employer while self-employed individuals are responsible for the full 12.4%. For example, an individual with wages equal to or larger than $160,200 would pay $9,932.40 in Social Security taxes in 2023 and his or her employer would contribute the same amount. If self-employed, that individual would pay $19,864.80.

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  The amount of earnings needed for Social Security credits increases.

To qualify for Social Security benefits, individuals must earn credits by working in a job that withholds Social Security taxes. Social Security bases these “work credits” on the amount an individual earns in any given year, using their earnings and work history to determine eligibility for disability benefits, retirement benefits, and survivor benefits. A person must earn 40 work credits over their lifetime to be eligible for Social Security benefits, with a maximum of 4 work credits per year. Each year the amount of earnings needed for credits increases as average earnings levels increase. In 2023, one work credit will be awarded for every $1,640 (up from $1,510 in 2022); you can earn up to 4 credits per year, equivalent to $6,560 in income in 2023.

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  Retirement earnings test tax exempt amount increases.

Social Security withholds benefits if a beneficiary exceeds a certain income level and if they are under full retirement age. For individuals who are working while collecting Social Security benefits, but are under full retirement age, the income limit for 2023 will be $21,240. This is an increase from $19560 per year in 2022. One dollar in benefits will be withheld for every $2.00 in earnings above the limit. For individuals who reach full retirement age in 2023 and continue to work while collecting benefits, the limit is $56,5200 per year (up from $51,960 per year). One dollar in benefits will be withheld for every $3 in earnings above the limit.

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  Changes to Medicare premiums and coverage.

Social Security beneficiaries who are enrolled in Medicare will see changes to premiums, coverage, deductibles and coinsurance amounts. Part A premiums will remain at $0 for most beneficiaries because they paid Medicare taxes while working. However, if you didn’t get premium-free Part A, you will pay up to $506 each month. If you don’t buy Part A when you’re first eligible for Medicare, usually when you turn 65, you might pay a penalty. Part B premiums will decrease to $164.90 per month, (A decrease from up from $170.10 per month. The annual deductible will also decrease to $226 from $233. with a $217 deductible. Medicare Advantage plans will also be lower, with the average plan estimated at $18 per month (down from $19 per month). Most Medicare Advantage Plans include Plan D prescription coverage, but for those who are not enrolled in those plans, the average premium for Part D drug coverage in 2023 is projected to increase to $43 per month from $39.

Whether you are a person with a disability or retired, you will notice a change in your Social Security benefits. The Social Security Administration posts updates online for all beneficiaries who have a my Social Security account. You can sign up online to view changes and receive courtesy notifications at https://www.ssa.gov/myaccount.