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Social Security benefits will get their biggest boost in decades in 2023, thanks to 2022’s surging consumer prices. Inflation and rising wages mean a host of other changes for the tens of millions of retirees, disabled workers and members of their families who rely on the program. Here’s what’s in store for the year to come.
Bigger benefits
Rampant inflation produced an 8.7 percent cost-of-living adjustment (COLA) for Social Security beneficiaries in 2023, the biggest percentage jump since 1981. That translates into a $146 boost in the average monthly retirement benefit, from $1,681 to $1,827.
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The maximum benefit for a worker who claims Social Security at full retirement age (FRA) in 2023 will be $3,627 a month, up from $3,345 in 2022. FRA is 66 years and 4 months for people born in 1956 and 66 and 6 months for those born in 1957; people born from Sept. 2, 1956, through July 1, 1957, will reach it in 2023.
The COLA is applied to all types of Social Security payments and to Supplemental Security Income (SSI), a safety-net benefit for older, blind and disabled people with low incomes and limited assets that is administered by the Social Security Administration (SSA).
No Medicare premium offset
In 2022, a 5.9 percent COLA raised the average retirement benefit by $92 a month. But a record-high hike in Medicare Part B premiums undercut that increase for the majority of Medicare enrollees whose Part B premiums are deducted directly from Social Security payments.
That won’t be the case in 2023, as the standard Part B premium declines from $170.10 a month to $164.90, leaving many beneficiaries with a few extra dollars in their monthly Social Security deposits.
Social Security taxes
Social Security benefits are largely funded from a 12.4 percent tax on work earnings, typically split between employee and employer. (If you work for yourself, you pay both shares.) The tax rate hasn’t changed in years, but the amount of income subject to it increases in line with the COLA.
In 2022, you paid Social Security taxes on work income up to $147,000. In 2023, the threshold rises to $160,200. You won’t pay into Social Security on earnings above that level, nor will your employer.
Social Security earnings limits
People receiving retirement, survivor and family benefits who have not yet reached full retirement age may have a portion of their Social Security payments temporarily withheld if they continue to work and have earnings above a certain level.
This earnings test changes annually in line with national wage trends. In 2023, the threshold is $21,240 for beneficiaries who will not reach full retirement age until a later year (up from $19,560 in 2022). For every $2 in annual work income above that limit, the SSA withholds $1 in benefits.
If you will reach FRA in 2023, Social Security withholds $1 in benefits for every $3 in earnings above $56,520 (up from $51,960 in 2022) until the month when you hit the milestone. At that point, the earnings test goes away — there’s no benefit deduction, no matter how much you earn. In addition, the SSA adjusts your benefit upward so that over time, you recoup the prior withholding.
There’s a separate earnings rule for those receiving Social Security Disability Insurance (SSDI). Because this benefit is intended for people who are largely unable to work for an extended period due to a serious medical condition, you can lose it if your income exceeds a threshold for “substantial gainful activity,” as the SSA calls it.
In 2023, that threshold rises from $1,350 to $1,470 a month for most disabled beneficiaries. People receiving SSDI on the basis of blindness can earn up to $2,460 a month from work in the coming year, up from $2,260 in 2022.
Qualifying for benefits
You become eligible for benefits by collecting Social Security credits, which you earn by doing “covered” work — a job or self-employment in which you pay Social Security taxes on your income. In 2022, you got a credit for earnings of $1,510; in 2023, that goes up to $1,640.
You can earn up to four credits a year, equivalent to $6,560 in income in 2023. It takes 40 credits, or 10 years of covered work, to qualify for retirements benefits.
You must also compile credits to qualify for SSDI, but the number required can range from six (or a year and a half of work) to 40, depending on your age when you became disabled.
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