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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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. 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.
-
Stock Market Today: Stocks Rise as Fed Rate Cuts NearThe main indexes closed out the day and week notably higher as excitement swirls ahead of next week's rate cut.
-
Where to Move Your Money Before the Next Fed MeetingTake advantage of high savings rates before the anticipated Fed rate cut next week erodes APYs and lowers returns.
-
Four Common Misconceptions About Life InsuranceJust because you have no dependents and no debt doesn't mean life insurance wouldn't come in exceedingly handy for someone in your life or even a charity.
-
Should You Keep Your 401(k) When You Retire?Here are three primary reasons you might want to consider moving your retirement money from your 401(k) to an IRA once you retire.
-
Want to Move to Italy? What to Consider FinanciallyOnce you've decided that you and Italy are compatible, you'll want to work out your tax planning, investments, retirement accounts and benefits.
-
Estate Planning: How to Protect Family TreasuresItems like antiques, art and jewelry, as well as family photos, can carry huge emotional ties. The more specific you are in your plans, the better for everyone.
-
529 Plans: A Powerful Way to Tackle Rising Education CostsContributions to 529 plans grow tax-free and are not taxed when they are used to pay for qualified educational expenses for the beneficiary.
-
Saving to Be a 401(k) Millionaire? Plan for Taxes NowYour tax bite in retirement could be excruciating. Here's why super savers need to get serious about protecting themselves.
-
Considering a 721 Exchange? Adopt a Buyer Beware MindsetHaving a tax-smart exit strategy for your real estate investment is a great idea, but if a 721 exchange is part of your plan, here's what you need to consider.
-
Five December 31 Tax Deadlines for RetireesThe end of the year will be here before you know it, so it might be a good idea to start thinking soon about what you need to do for taxes before it arrives.
