What You Need to Know About 2023 Social Security Changes Beyond the COLA

The cost-of-living adjustment (COLA) isn’t the only change on tap for Social Security next year. Some modifications might make you rethink your retirement plans.

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It’s no surprise that due to the increased level of inflation that this country is experiencing, the Social Security COLA, or cost-of-living adjustment, is staggering. Other 2023 Social Security changes beyond the COLA are on tap, too.

For 2023, those collecting Social Security will see a COLA increase of 8.7%. This means that if you are collecting $2,000 a month in 2022, next year you’ll see that number go up to $2,174 per month.

In addition, there will also be an adjustment for tax purposes next year when it comes to paying into Social Security. In 2022, the threshold to pay into Social Security is $147,000. This number is also referred to as the taxable minimum – but it really means that it’s the amount of your income that is subjected to Social Security taxation. Anything you make above that amount is not subjected to further taxation for Social Security.

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In 2023, that threshold is increasing to $160,200. So next year, the first $160,200 of your income will be taxed for Social Security at a rate of 7.65%.

It’s also important to note that if you have not reached your full retirement age (FRA), and you’re still working, you will have $1 in benefits withheld for every $2 in earnings you make above the earnings limit. In 2022, that amount is $19,560, and in 2023, it will increase to $21,240 in earnings.

To complicate things further, the year an individual reaches their FRA, the income limit goes from $51,960 per year to $56,520 per year.  This applies only to earnings for the months prior to attaining your FRA. $1 in benefits will be withheld for every $3 in earnings above this limit.  The good news is the month after you reach your FRA, there is no reduction whatsoever.

Do These Changes Change Your Plans?

As financial planners, we often advocate for not taking your Social Security benefits while you’re still earning income, as you receive less than you’re eligible to collect, but if you wait, your benefits will keep increasing for the years that you aren’t earning later.

While you can begin collecting Social Security at age 62 on a reduced benefit, you can wait as late as age 70 on a full benefit. If you’re older than 70, there’s no additional benefit to waiting, as you’ve already achieved the most benefit possible.

When you’re determining when to take your own Social Security, there are many factors to consider, beyond your age and when you stop working. Take into account your investments and at what rate they’ll be taxed, in addition to what other fixed incomes you may have during retirement.

You’ll also want to account for your general health and life expectancy. Your spouse, their age and their own Social Security will play into this equation as well.

Disclosure: Diversified, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the SEC. A copy of Diversified’s current written disclosure brochure which discusses, among other things, the firm’s business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov (opens in new tab). Investments in securities involve risk, including the possible loss of principal. The information on this website is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction. 

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC (opens in new tab) or with FINRA (opens in new tab).

Andrew Rosen, CFP®, CEP
President, Partner and Financial Adviser, Diversified, LLC

In March 2010, Andrew Rosen joined Diversified (opens in new tab), bringing with him nine years of financial industry experience.  As a financial planner, Andrew forges lifelong relationships with clients, coaching them through all stages of life. He has obtained his Series 6, 7 and 63, along with property/casualty and health/life insurance licenses.