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Social Security: How the New Changes Apply to You

It is the biggest increase in benefits since 1982 and has made headlines in all the news outlets. Social Security is giving everyone a “raise.” While this may sound like celebrations are in order, don’t pop the cork on that bottle of Dom Perignon champagne just yet.

Let’s look at what the changes are and how they may affect your financial situation. Then we will discuss how you can maximize your benefits.

Social Security Changes for 2023


They signed the Social Security Act in 1935 to provide financial assistance to the elderly who were living in poverty because of The Great Depression. Over time, they amended the act each decade to allow for changes in who may receive benefits and at what age. Currently, Social Security benefits are available to anyone over 62 years old, the blind, and the disabled, depending on the number of years worked.

Each year, the Social Security Administration revisits the cost-of-living adjustment (COLA) and makes changes to it to reflect increases in inflation and the Consumer Price Index. The goal is to ensure that recipients of Social Security benefits will maintain their purchasing power and standard of living.

Some changes to 2023 include:

Increase in COLA by 8.7% This means that monthly benefit checks will rise by $146 for the average recipient. The amount you receive may be different depending on your work credits.

Increase in Income Threshold for Disabled. Currently, persons with disability and working can earn up to $1,350 monthly and still receive benefits. That earning threshold will increase to $1,470 next year. This means they can earn more and still qualify for benefits.

Increase in Income Threshold for Early Retirees. For those who choose to file for Social Security early (ages 62 to 66), there is a preset income threshold of how much they can earn as income without having some of their monthly benefit withheld. That threshold is increasing from $19,560 to $21,240.

Increase in Taxable Earnings Cap. Employees and employers pay the payroll tax on wages and salaries up to $147,000. This amount is increasing to $160,200 next year, meaning higher earners will be on the hook for taxes owed.

Increase in Maximum Payout at Full Retirement Age. At full retirement age, or 67 years old, retirees can become eligible for one hundred percent of Social Security benefits assuming that they met the parameters set. This amount will rise from $3,345 per month to $3,627 monthly.

For a full list of changes in the coming year, take a look at the COLA Fact Sheet.

How Will It Affect Me?

So, what does all this mean to you? How will these changes apply to you and your financial situation? The drone view of how these changes might affect you include:

  1. Increase in Taxes Owed. The majority of people receiving Social Security pay taxes on the benefits they collect. Receiving higher monthly checks may bump you up into a higher tax bracket and result in paying more federal taxes. Some states tax Social Security benefits. So, you may owe state taxes, too.

  2. Increase in Medicare Costs. If you get Medicare, you remember that the premiums for Part B (doctors) and Part D (medications) have an income-related threshold. By making more monthly from Social Security, you may pay significantly higher premiums.

  3. Ineligibility for Certain Programs. Eligibility for programs like Medicaid, nutrition assistance, disabled veterans’ assistance, and military retirees depends on certain income caps. Receiving a bump up in Social Security monthly benefits can put some people over the threshold. They may no longer qualify for assistance from these programs.

We are speaking generally, of course. If you have specific questions, we are available to give you more pointed advice about how these changes will affect you.

Maximizing Your Social Security Benefits

The ins and outs of applying for and receiving Social Security benefits can be tricky, frustrating, and puzzling at times. Regardless of the coming changes, there are some ways you can maximize the amount of Social Security benefits you receive.

These ways include:

Earn Income for 35 Years or More. Yes, that sounds daunting, doesn’t it? But think about it, the average 65-year-old who started working at 20 has logged 45 years of income. The Social Security Administration (SSA) takes the figure you earned from the 35 highest earning years and computes what benefit you will receive when you reach full retirement age.

Continue to Earn Income Past Age 60. Retirement isn’t always what they crack it up to be, so many retirees continue to work for enjoyment and personal fulfillment. But they are also potentially increasing their benefit amount. Any annual income earned after 60 years old can fill in for a previous lower earning year.

Wait Until Full Retirement Age. There are some who need or want to take their benefits starting at age 62. But patience pays off for those who wait until 67 to collect benefits. By waiting, retirees will receive a higher amount each month. Waiting until 70 to collect yields even higher benefit checks. To calculate the effect of an early or later retirement, you can use the SSA calculator.

Learn the Ways to Reduce Taxes on Benefits. Taxes need to be paid on Social Security benefits but you can learn of the many strategies available to reduce the amount of taxes owed. Moving to another state that does not collect taxes on SSA benefits is certainly one option, but there are also less drastic measures. An example of one strategy is taking advantage of retirement accounts like Roth IRAs, Roth 401(k)s, and others that can help reduce your taxes.

Final Thoughts

A new year always brings change with it and 2023 is no exception. Social Security is slated for some big shifts in the coming months. Prepare and educate yourself so you can make the most of the changes!