There’s been a lot of bad news recently associated with the impact of inflation—but Social Security recipients got some good news this morning—and it bodes well for retirement savers as well.
Social Security and Supplemental Security Income (SSI) benefits for approximately 70 million Americans will increase 8.7% in 2023, the Social Security Administration announced today. On average, Social Security benefits will increase by more than $140 per month starting in January, according to a press release.
There were only three other times since the start of automatic adjustments that it was higher—9.9% in 1979, 14.3% in 1980 and 11.2% in 1981. The next highest after those three years was in 1982, when it was 7.4%.
Retirement Savers
As for retirement savers, boosts in the cost of living adjustment will carry through to a number of benefits and contribution limits of retirement plans. Using the Internal Revenue Code’s cost-of-living adjustment and rounding methods, the CPI-U through June, and estimated CPI-U values for July, August and September, Mercer has projected that the contribution limits for 401(k), 403(b) and eligible 457 plan elective deferrals (and designated Roth contributions) will increase from $20,500 this year to $22,500 in 2023, while also anticipating that the 415(c) DC plan maximum annual addition could increase from $61,000 to $67,000, not to mention possible adjustments in data points such as highly compensated employees, compensation limits, and top-heavy standards. We’ll have to wait and see what the Internal Revenue Service says—later this month, or possibly in early November.
Social Security Timing
The 8.7% cost-of-living adjustment (COLA) will begin with benefits payable to more than 65 million Social Security beneficiaries in January 2023. Increased payments to more than 7 million SSI beneficiaries will begin on Dec. 30, 2022. (Note: some people receive both Social Security and SSI benefits). The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics.
Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase quite a bit—to $160,200 from $147,000.
Information about Medicare changes for 2023 is available at www.medicare.gov. For Social Security beneficiaries enrolled in Medicare, their new higher 2023 benefit amount will be available in December through the mailed COLA notice and my Social Security's Message Center.
The Social Security Act provides for how the COLA is calculated. To read more, please visit www.ssa.gov/cola.
