• Yvonne Darby

What You Need to Know about the Social Security Benefit Increase

There’s been a resurgence of focus on Social Security with the recent announcement of the 8.7% cost of living adjustment (COLA) starting in January 2023 to help combat the rise in inflation. This will be the largest increase since the 11.2% adjustment in 1981. This adjustment is coupled with a decrease in Medicare Part A & B premiums and deductibles and Part D Income-Related Monthly Adjustments, which will be the first drop in over a decade. [i] While this article will focus mainly on the Social Security changes, you can read more about the Medicare cost decrease here.


What Age Should You Start to Receive Benefits? [ii]


Early Retirement Age

You can opt-in for Social Security retirement benefits as early as age 62. However, this will reduce your benefit if you start receiving benefits before your full retirement age. You can find a detailed breakdown of the impact of taking Social Security early here. [iii]


Full Retirement Age

Full retirement age is the age when you can start receiving your full retirement benefit amount. The full retirement age is 66 if you were born between 1943 and 1954. The full retirement age increases gradually by month if you were born between 1955 and 1960 until it reaches 67. For anyone born in 1960 or later, full retirement benefits are payable at age 67. You can find your full retirement age by birth year in the full retirement age chart. [iv]


Delayed Retirement Age

When you delay benefits beyond your full retirement age, your retirement benefit will continue to increase up until age 70. There is no incentive to delay claiming after age 70.


We often encourage our clients to defer Social Security at least until full retirement age (FRA) as a way of optimizing their plan. This, of course, is dependent on their personal circumstances. Social Security can be an important tool in retirement planning as it takes the pressure off your own investments to fund your lifestyle in retirement. By deferring Social Security, you allow for an 8% increased benefit each month that you defer past age 62 until age 70. If you’re unsure when it would be optimal for you to turn on Social Security, reach out to schedule a complimentary introductory call. We’d be happy to run an analysis for you.



When Can I Expect to Receive Increased Payments?

Increased benefit payments will begin in January 2023 to more than 65 million Social Security beneficiaries. If you also receive SSI benefits, you should see those payments beginning on December 30, 2022.


How is Social Security Taxed?

Some people are concerned that the increased payments will result in more taxes. Social Security payments are more favorably taxed than earned income. Under current law, you are taxed on up to 85% of your Social Security benefits. What does this mean practically based on income? The income limits below include total money earned through part-time or full-time work in addition to your Social Security benefits. You could be pushed into a higher tax bracket with this increased Social Security benefit, so it would be best to consult your Financial Advisor if you are concerned.



How Does this Impact the Amount of Money I Can Earn?

The earnings limit for workers younger than "full" retirement age (see Full Retirement Age Chart) will increase to $21,240. [vi] There is a deduction of $1 from benefits for each $2 earned over the limit.

The earnings limit for people reaching their “full” retirement age in 2023 will increase to $56,520. There is a deduction of $1 from benefits for each $3 earned over $56,520 until the month the worker turns “full” retirement age.

There is no limit on earnings for workers who are "full" retirement age or older for the entire year. [vii]

Does this Increase Mean that You Should Take Social Security Now Rather Than Wait?

There’s no hurry to turn on your Social Security. This 8.7% increase will be implemented come January 2023 and will remain in effect whenever you decide to opt into your Social Security benefits in the future.


The offer remains that if you’re unsure when it would be optimal for you to turn on Social Security, reach out to schedule a complimentary introductory call. We’d be happy to run an analysis for you.

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[i] https://www.cms.gov/newsroom/fact-sheets/2023-medicare-parts-b-premiums-and-deductibles-2023-medicare-part-d-income-related-monthly

[ii] https://www.ssa.gov/benefits/retirement/learn.html#:~:text=The%20full%20retirement%20age%20is,are%20payable%20at%20age%2067.

[iii] https://www.ssa.gov/OACT/quickcalc/earlyretire.html

[iv] https://www.ssa.gov/benefits/retirement/planner/agereduction.html

[v] https://www.forbes.com/advisor/retirement/social-security-cola-2023/

[vi] https://www.ssa.gov/benefits/retirement/planner/agereduction.html

[vii] https://www.ssa.gov/cola/#:~:text=Social%20Security%20and%20Supplemental%20Security,increase%208.7%20percent%20in%202023.&text=Read%20more%20about%20the%20Social,maximum)%20will%20increase%20to%20%24160%2C200

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