We are about two months away from the main Social Security announcement
Social Security is a critically important source of income for millions of seniors. And these days, retirees may rely on those benefits more than usual.
The stock market has been very volatile since the beginning of the year. As such, many retirees have been relying more on their Social Security income so they can leave their wallets alone and avoid incurring losses.
Meanwhile, each year Social Security benefits are subject to a cost of living adjustment, or COLA. The purpose of COLA is to help ensure that seniors are able to maintain their purchasing power as the cost of living increases due to inflation.
This year, the rate of inflation has soared to an almost unbearable degree, leaving seniors wondering what kind of an increase in Social Security benefits they might get in 2023. The good news is that we are getting closer and closer to the answer to this important question. The bad news is that seniors will still have to sit rigorously for a few more months until these details become available.
Many changes are coming
The Social Security COLA is based on third-quarter data from the Consumer Price Index for urban wage earners and clerical workers (CPI-W), which tracks fluctuations in the cost of consumer goods and services. While we know that living expenses are up this year across the board, we won’t have a full set of third-quarter inflation data until after that quarter actually ends.
As such, the Social Security Administration (SSA) typically announces its COLA during the first half of October, and this year should be no exception. Seniors should also expect the COLA Act of 2023 to exceed the 5.9% booster benefits obtained in 2022.
In addition to the COLA details, the SSA generally announces a series of major changes in October that could affect seniors and working people alike. For one thing, you must also announce changes to your annual earnings test limit, which applies to seniors who work and collect Social Security benefits at the same time.
In October, the SSA must also announce the 2023 wage cap. Each year, a cap is set on the amount of wages subject to Social Security taxes. This year, that limit reached $147,000. Workers should expect to see a higher wage ceiling in 2023, but we won’t know how much until October.
Stay tuned for important news
Clearly, there’s a lot of basic information set up for you to get through Social Security in just a couple of months. As seniors anxiously await news of higher inflation in growth rates, they can, and should, take steps to try to extend their current benefits as inflation rises. That could mean cutting back on strategic spending or finding other ways to increase income, such as working part-time.
Those who are still active members of the workforce can also begin to think of ways to reduce their tax burden in the coming year, as it is fair to assume that the wage ceiling will rise again. It is certain that the highest wage earners will be affected by the increase in the maximum wage. But those looking to avoid the big tax hit can start playing around with different strategies, such as a maximum retirement plan and HSA contributions to offset as much income from tax as possible.