Social Security Update for 2023

It has been my custom for most of the past 25 years to write a year-end column that summarizes the Social Security changes and updates scheduled to take place the following year. I already discussed some of these changes in a column back in October when the updates were first announced. But it doesn’t hurt to repeat them here.

Almost all Social Security beneficiaries are familiar with the most popular and publicized upcoming change: the increase in monthly benefit checks for 2023 due to the automated cost-of-living adjustment, or COLA. In fact, my wife and I just received our letters from the Social Security Administration telling us about the 8.7% increase, and I’m sure you got yours, too.

Even though this is the biggest increase in many decades, I always dread mentioning COLAs in this column because every single time I do, I am flooded with emails from readers complaining that the increase is not enough.

Yet here’s the rub: many economists and social planners believe Social Security COLAs are too generous! (I’ve explained why in past columns, but don’t have the space to get into that argument today.) That’s why most discussions of long-range reform for Social Security include proposals to reduce cost-of-living increases.

OK, back to the 2023 Social Security COLA. Due to these increases, the average monthly retirement check will be $1,827 in 2023, a $146 increase from the 2022 level. The maximum Social Security check for a worker turning full retirement age in 2023 will be $3,627, compared to $3,345 in 2022. And please note that $3,627 is the maximum for someone turning full retirement age in 2023. That does not mean it is the maximum Social Security payment anyone can receive. There are millions of Social Security beneficiaries who get much more than that, primarily because they worked well past their FRA and/or delayed starting their benefits until age 70.

Here’s another important point about the COLA. Many readers have been asking me if they should have filed for Social Security benefits in 2022 in order to get the COLA that’s paid in January 2023. The answer is no. The COLA will be built into the benefit computation formula. So even if you don’t file for Social Security until next year, or some subsequent year, you’ll still get the 8.7% increase.

Although this is a Social Security column, I must mention the upcoming decrease in the Medicare Part B premium, which is deducted from Social Security checks for most people. In 2023, the basic Part B premium will be $164.90. That’s $5.20 less than the 2021 rate. And as has been the case for 20 years now, wealthy people will pay more than the basic premium.

I don’t want to get into this complicated issue of Medicare premiums other than to make this quick point. Even though they are linked in the minds of most senior citizens, Social Security and Medicare are entirely separate programs, administered by entirely separate federal agencies, and they have entirely separate rules and regulations regarding their benefit and payment structures. For example, I already explained how Social Security COLAs are figured. The Part B Medicare premium has nothing to do with the CPI. Instead, by law, it must be set at a level that covers 25% of the cost of running the program. Taxpayers pick up the remaining 75%. (And again, wealthy people pay more than the 25% share.)

Another measuring stick called the “national wage index” is used to set increases to other provisions of the law that affect Social Security beneficiaries and taxpayers. Specifically, this includes increases in the amount of wages or selfemployment income subject to Social Security tax; the amount of income needed to earn a “quarter of coverage;” and the Social Security earnings penalty limits.

The Social Security taxable earnings base will go up from $147,000 in 2022 to $160,200 in 2023. In other words, people who earn more than $160,200 in 2023 will no longer have Social Security payroll taxes deducted from their paychecks once they hit that threshold. This has always been a very controversial provision of the law. (Bill Gates pays the same amount of Social Security tax as his plumber!) I think it’s a pretty good bet that any eventual Social Security reform package will include an increase in that wage base.

Most people need 40 Social Security work credits (sometimes called “quarters of coverage”) to be eligible for monthly benefit checks from the system. In 2022, people who were working earned one credit for each $1,510 in Social Security taxable income. But no one earns more than four credits per year. In other words, once you’ve made $6,040, your Social Security record has been credited with the maximum four credits or quarters of coverage. In 2023, the one-credit limit goes up to $1,640, meaning you will have to earn $6,560 this coming year before you get the maximum four credits assigned to your Social Security account.

People under their full retirement age who get Social Security retirement or survivor’s benefits but who are still working are subject to limits in the amount of money they can earn and still receive all their Social Security checks. That limit was $19,560 in 2022 and will be $21,240 in 2023. For every two dollars a person earns over those limits, one dollar is withheld from his or her monthly benefits.

There is a higher earnings threshold in the year a person turns full retirement age that applies from the beginning of the year until the month the person reaches FRA. (The income penalty goes away once a person reaches that magic age.) That threshold goes up from $51,960 in 2022 to $56,520 in 2023.

A couple other Social Security provisions are also impacted by inflationary increases. For example, people getting disability benefits who try to work can generally continue getting those benefits as long as they are not working at a “substantial” level. In 2022, the law defined substantial work as any job paying $1,350 or more per month. In 2023, that substantial earnings level increases to $1,470 monthly.

Finally, the Supplemental Security Income basic federal payment level for one person goes up from $841 in 2022 to $914 in 2023. SSI is a federal welfare program administered by the SSA, but it is not a Social Security benefit. It is paid for out of general revenues, not Social Security taxes.