Social Security Updates, Oh My!
Social Security Updates
Alright, the time you all have been waiting for, and by all, I mean those eligible for Social Security. With inflation running rampant, speculations have been swirling around as to what the COLA increase will be for those collecting Social Security.
Not to anyone’s surprise, the numbers are quite staggering. That said hope you are all sitting down for this one as you are about to get a hefty raise. For the 2023 year, your increase to what you collect will go up a whopping 8.7%. That means if you collected $2,000/mo this year, next year you will get a raise to $2,174/mo. Sure, beats a stick in the eye.
COLA Increases & Social Security Tax
Although, the COLA seems to be the most pressing information people care about I do still want to point out a nugget of data for us working stiffs. In 2022, if you paid into the Social Security pool up to $147,000 of earnings. In 2023, that threshold to pay Social Security tax has moved, yet again, to $160,200. That means your first $160,200 of earnings will be taxed at 7.65%. Once you hit that threshold you are no longer required to pay the Social Security portion of your income.
Some less common, but still important data worth noting is taxability if you’re working and collecting. If under your full retirement age (FRA), you will have one dollar in benefits withheld for every two dollars in earnings above the limit. For the calendar year 2022, that amount was $19,560, with an increase in 2023 to $21,240 in earnings.
To complicate things further, the year an individual reaches their FRA the income limit goes from $51,960/yr to $56,520/yr. This applies only to earnings for months prior to attaining your FRA. One dollar in benefits will be withheld for every three dollars in earnings above this limit. The good news is the month after you reach your FRA there is no reduction whatsoever.
When Should You Take Social Security?
Planning tip: Therefore, I am a huge proponent of generally not taking SS benefits if you are still earning income. Not only will you receive less than you are eligible to collect, but by waiting your benefits keep increasing for those non-earning years.
Few other nuggets worth sharing. One is the maximum benefit now stands at $3,627/mo, up from $3,345/mo in 2022. As a reminder, the formula is based on your 40 highest quarters of income. Although, once you hit the taxability limit no other income benefits your Social Security formula.
If you are wondering what your FRA age is, well you came to the right place.
If you are born in 1960 or later your FRA age is 67 years young.
If born between 1943-1954 your FRA is 66 years young.
If born between 1955-1959 your FRA age is based on the year you were born:
- 1955=66 and 2 months
- 1956=66 and 4 months
- 1957=66 and 6 months
- 1958=66 and 8 months
- 1959=66 and 10 months
It is important to remember that you can collect Social Security as early as 62 on a reduced benefit and as late as age 70 on an increased benefit. Thus, if older than 70 there is no benefit in waiting to collect as you have already achieved the highest benefit possible.
There is a lot to go into Social Security strategies and when the best time for you personally is to collect. We help individuals figure this out to optimize their incomes, retirements, and Social Security every single day. It is a very nuanced answer and personal based on your circumstances. That said, I hope the above serves as a nice key to the current state and happenings of Social Security for the upcoming year.
As always stay wealthy, healthy, and happy.
If you prefer to watch our blogs, here is the video version: