Inflation topped 8.2% over the past 12 months through September (tinyurl.com/2hfmxp2s). That's bad news for consumers, but good news for the roughly 70 million Americans who receive Social Security benefits. On average, Social Security benefits will rise by about $140 per month beginning in January. That's an increase of 8.7% over 2022's benefit, which was announced by the Social Security Administration (SSA) recently. (tinyurl.com/4rk7kz8a).
The 8.7% increase was the largest cost-of-living adjustment (COLA) since the double-digit increases in 1980 (14.3%) and 1981 (11.2%), when inflation was also high (13.5% in 1980; 10.3% in 1981 -- see tinyurl.com/5n87wmzt). As inflation declined in the 1980s, so did the COLA, with a 7.4% increase in 1982, and 3.5% each in 1983 and 1984 (tinyurl.com/54ne8h46).
The estimated average monthly Social Security benefit payable in January 2023 for all retired workers will be $1,827. For an aged couple who are both receiving benefits, the estimated average amount is $2,972, and for an aged widow(er) alone, it is $1,704 (tinyurl.com/5dvnspyd).
The maximum Social Security benefit for a worker who retires at the full retirement age (if you were born in 1960 or later, it is age 67 -- see tinyurl.com/4t5zpk3k for more details) is $3,627 per month, an increase from 2022 of nearly $300 per month.
There were other important details offered by the SSA related to 2023.
While you are employed, a Social Security tax is automatically deducted from your paycheck. The tax is calculated on earnings below a certain threshold. The 2023 threshold is $160,200, an increase from 2022's $147,000. The tax rate for an employee remains 7.65%; for the self-employed, the tax rate remains 15.3%. These tax rates are for Social Security (which includes Old-Age and Survivors Insurance and Disability Insurance) and Medicare taxes.
Let's talk about "excess earnings" that reduce Social Security benefits when you retire BEFORE your full retirement age (also referred to by Social Security as your "normal retirement age"). One dollar in Social Security benefits is withheld for every $2 in earnings if you earn above $21,240 (2023), an increase of more than $1,600 over 2022.
However, if 2023 is the year that you reach your full retirement age, then the formula is different: $1 in Social Security benefits is withheld for every $3 in excess earnings (based on earnings of more than $56,520, or $4,710 per month). The SSA notes that it applies only for the earnings for the months in 2023 prior to reaching full retirement age.
The SSA states that "any benefits withheld while you continue to work are not 'lost.' Once you reach [your full retirement age], your monthly benefit will be increased permanently to account for the months in which benefits were withheld" (tinyurl.com/2pvedt9c).
If you are receiving Social Security and SSI benefits, you will be notified in early December about your new benefit amount, according to the SSA. You also can look up the COLA notice online in your "my Social Security" account (tinyurl.com/3jk6ze5p).
Overall, a "raise" sounds nice. But there are some things to keep in mind. The Senior Citizens League, a nonpartisan seniors group, pointed out that an increase in Social Security income could raise your overall income and subsequently increase your income-related Medicare premiums (tinyurl.com/53434uvy). For Medicare premium income levels, see tinyurl.com/5n6fs2jt.
Also, those who haven't had to pay taxes on their Social Security benefits might find themselves doing so if their overall income surpasses certain levels ($25,000 for an individual, and $32,000 for a married couple). See more details on Social Security taxes at tinyurl.com/5xtc6b4k.
Before the Social Security increase takes effect, make sure to have your budget plans in place, and continue to focus on saving where you can in order to take full advantage of your extra funds.
On another matter, the deadline to apply for the 2022 401(k) Champion Award, which honors those who optimize their 401(k)s and encourage others to do the same, has been extended to Nov. 17. To compete for the award, go to 401kchampion.com.
DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION