Social Security is supposed to be a sure thing for everyone who pays into it. If there’s one thing the last few years have taught Americans, though, it’s there are few sure things. There are some big changes coming to Social Security in 2023. If you aren’t ready, those tweaks can negatively impact your retirement plans. Here is what you need to know about the upcoming Social Security changes and what you can do to deal with them.
What Stays the Same?
There are numerous changes in play this year, but the debate as to whether the age of retirement should be raised or lowered remains at a standstill. The full retirement age remains the same at 67 years old, a change made in 2022.
Of course, this does not mean that you must wait until 67 years old to begin pulling your Social Security. The minimum retirement age is still 62 years old. However, withdrawing your Social Security checks at 62 will result in a lower payout than if you were to wait until full retirement age (but more on that as we go).
A Change in Cost of Living Adjustment
Due to the rise in inflation over the last year, it is expected that the Cost of Living Adjustment, or COLA, will go up. This increase is considered historic. If you wait until full retirement age (FRA) to start pulling your social security check then you can expect your monthly check to increase by $282 to $3,627 a month. If you do not wait to achieve FRA then you will likely only receive an increase of $140 a month.
In theory, more money is a good thing, but the truth is that the increase may not be enough to meet the challenge of inflation. Due to consistent inflation, Social Security benefits have lost roughly 40% of the buying power that they once had. Times are tough all around, but they should not be tough during one’s retirement. Unfortunately, this trend shows little sign of slowing down in the long-run.
Playing the Long Game for Greater Reward
Waiting until the full retirement age of 67 is not required to start drawing social security, but may be the best option for some to consider. Waiting until the full retirement age could net you a delayed retirement credit of 8% of your yearly benefits earnings on top of the maximum benefit earnings amount. That’s a significant chunk of change.
The longer you wait past the minimum retirement age of 62, the more money you stand to collect. It is understandable this isn’t a possibility for all people who reach retirement age, yet waiting to any degree can still net you more money. It is simply a matter of how long you feel you’re capable of putting off retirement.
You also have the option of working while pulling your Social Security. This is a good option for those who need to work yet also require the assistance a monthly check can provide. Be warned, however, you cannot make more at your job than your benefits provide, or they can be pulled from you.
Higher Earnings, Higher Taxes
If you earn more money, then you will have to pay more money into income tax. Prior to this year, the maximum amount of money that was subject to Social Security taxation was less than $150,000 ($147,000 to be exact). This year, employees who make upwards of $160,000 can expect to pay upwards of $13,000. That’s because Social Security funding comes primarily from payroll taxes.
What You Should (Probably) Do
If the new changes to Social Security have you worried, take comfort knowing there are things you can do to put yourself in a better position.
Save Save Save
One of the first things you can do is prioritize bulking up your savings. It is understandable that it putting back money in times of high inflation can be difficult, but if you can bite the proverbial bullet, you just may be able to set yourself up a nice nest egg to go with your Social Security benefits.
Keep Your Eye on the Economy
The best thing that you can do to use your Social Security to its fully potential is to stay vigilant about the state of the economy. Staying in touch with economic trends can help you be able to better allocate the use of your Social Security checks.
Have a Plan
If you want to make your Social Security checks stretch, then you need to have a plan for your money. Some people have enough money from their Social Security checks to cover their needs comfortably, while others may find that they need to get a little more creative. Whichever side of the financial spectrum you fall on, it is imperative that you have a plan.
Creating a monthly breakdown of what you will need during your retirement is imperative. Without any kind of a plan, you may find that it becomes difficult to manage your checks on a month-to-month basis.
Reach Out For Help
If you find that the changes made to Social Security have made things more confusing than necessary, do not be afraid to reach out for help. If you bank with a major banking network then there is a good chance that your bank offers financial advisory services. A financial adviser can help you navigate the murky waters of Social Security changes, both before changes occur and after they have taken effect. They can help you put together both a long-term and a short-term plan for your Social Security payments.