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You might have heard about big changes coming to retirement finance due to SECURE 2.0, a package of provisions included in the massive spending bill enacted by Congress and signed by President Joe Biden late last year. Among other things, SECURE 2.0, which AARP supported, will broaden access to workplace savings plans and expand incentives for savers to contribute to retirement accounts.
Most of SECURE 2.0’s key provisions won’t take effect until 2024 or beyond, but that doesn’t mean retirement finance is standing still in 2023. Changes to tax rules, savings plans, Social Security benefits and more will have an impact on older Americans’ pocketbooks in the here and now. Here’s a closer look at what’s in store.
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1. Social Security payments
Inflation isn’t good for much, but it is providing Social Security beneficiaries with their biggest increase in monthly payments in more than 40 years. The 8.7 percent cost-of-living adjustment (COLA) raises the average monthly retirement benefit by $146, from $1,681 a month to $1,827.
The first retirement, disability and survivor benefit payments reflecting the increase go out in January. People receiving Supplemental Security Income (SSI), a Social Security–administered benefit for low-income people who are older, blind or have disabilities, got their first COLA-boosted payment Dec. 30.
The COLA is based on changes in prices for a set of consumer goods and services in the third quarter of 2022 compared to the same period the year before. Since hitting a 40-year high of 9.1 percent in June, inflation has cooled somewhat, dipping to 7.1 percent in November. If that trend continues, the new COLA will provide an especially strong buffer against higher prices, since the benefit increase is fixed at 8.7 percent through 2023.
2. Retirement plan contributions
Like Social Security benefits, contribution limits to individual retirement accounts (IRAs), 401(k)s and other savings vehicles get an inflationary bump in 2023.
If you are 50 or older, the amount you can put into an IRA this year goes up from $7,000 to $7,500. That includes the $1,000 catch-up contribution available to older savers; the limit for those under 50 is $6,500 (up from $6,000 last year).
People age 50-plus can contribute up to $30,000 this year to a workplace retirement plan such as a 401(k), 403(b) or (for federal government workers) Thrift Savings Plan. That’s a $3,000 increase from the 2022 cap. The contribution limit for younger adults goes up from $20,500 to $22,500.
SECURE 2.0 includes multiple provisions to raise contribution limits in coming years. Starting in 2024, the catch-up contribution for IRAs, which has been stuck at $1,000 for several years, will be indexed to inflation, which could mean annual increases. From 2025, 401(k) catch-up limits will also be linked to inflation, and there will be a new, higher contribution cap for people ages 60 to 63.