Social Security is a critical income source for millions of seniors. And these days, retirees may be more reliant on those benefits than usual.
The stock market has been extremely volatile since the start of the year. As such, many retirees have been depending more on their Social Security income so they can leave their portfolios alone and avoid taking losses.
Meanwhile, each year, Social Security benefits are subject to a cost-of-living adjustment, or COLA. The purpose of COLAs is to help ensure that seniors are able to maintain their buying power as living costs rise due to inflation.
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This year, inflation has soared to an almost unbearable degree, leaving seniors to wonder what sort of raise their Social Security benefits might get come 2023. The good news is that we’re inching closer to an answer to that important question. The bad news is that seniors will still need to sit tight for a couple more months until those details become available.
Several changes are coming
Social Security COLAs are 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 have soared this year across the board, we won’t have a full set of third quarter inflation data until after that quarter is actually over.
As such, the Social Security Administration (SSA) usually announces its COLA during the first half of October, and this year should be no exception. Seniors should also expect 2023’s COLA to well exceed the 5.9% boost benefits got going into 2022.
In addition to COLA details, the SSA commonly announces a series of key changes in October that can impact seniors and workers alike. For one thing, it should also be announcing changes to its annual earnings-test limit, which applies to seniors who work and collect Social Security benefits at the same time.
In October, the SSA should also announce 2023’s wage cap. Each year, the amount of wages subject to Social Security taxes is capped at a certain limit. This year, that limit is set at $147,000. Workers should expect to see a higher wage cap in 2023, but we won’t know how much it will climb until October.
Stay tuned for important news
Clearly, there’s a lot of essential information set to come down the pike for Social Security in just a couple of months’ time. While seniors eagerly await news of a higher COLA, they can, and should, take steps to try to stretch their current benefits as inflation soars. That could mean cutting back on spending strategically or finding other ways to drum up income, like working part-time.
Those who are still active members of the workforce can also start thinking about ways to reduce their tax burden in the coming year, since it’s fair to assume the wage cap will once again rise. Granted, it’s higher earners who are set to be impacted by a wage cap increase. But those looking to avoid a big tax hit can start playing around with different strategies, like maxing out retirement plan and HSA contributions to exempt as much income from taxes as possible.
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