3 Changes to Social Security for New Retirees in 2023

(Trevor Jennewin)

Each year, about three million Americans begin receiving Social Security retirement benefits, at which point the Social Security Administration calls them retirees, regardless of employment status. The decision to claim benefits should never be taken lightly. Monthly Social Security checks are a major source of income for nearly 90% of retired workers, according to Gallup, and claiming benefits too early (or too late) can be a costly mistake.

Once you’ve made the decision to claim retirement benefits, you should stay informed about the Social Security program. For example, the Social Security Administration recently announced several important changes that will take effect next year.

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Here’s what you need to know if you plan to start receiving retirement benefits in 2023.

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1. The maximum limit of taxable earnings will increase

If you work next year, before or after you claim retirement benefits, you may pay more in Social Security taxes. Generally speaking, the maximum limit of taxable earnings increases each year to take into account salary inflation. For example, up to $147,000 of income is subject to Social Security payroll tax in 2022, but that number will increase 9% to $160,200 in 2023.

That means an additional $13,200 in income is taxable next year. The tax rate is 12.4%, but employees only pay 6.2% (ie the employer pays the other half). That means anyone who earns at least $160,200 will pay an additional $818.40 in Social Security taxes in 2023.

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2. The maximum Social Security benefit will be higher

The size of your retirement benefit depends on your lifetime earnings and age. Specifically, a formula is applied to your average inflation-adjusted earnings of the highest-paid 35 years of your career. The result is your primary insurance amount (PIA), the benefit you’ll receive if you claim Social Security at full retirement age (FRA).

Anyone who claims benefits before FRA receives a permanent reduction, and anyone who claims benefits after FRA (up to age 70) receives a permanent increase.

The PIA formula is adjusted each year to account for salary inflation. That means the maximum benefit payable to new retirees generally increases from year to year. This chart shows the maximum benefit amounts for 2023.

Starting age of retirement benefits

Maximum benefit amount

62

$2,572

Sixty-five

$3,279

66

$3,506

67

$3,808

70

$4,555

Data source: Social Security Administration.

As a warning, not many people get the maximum benefit. To qualify, your salary must meet or exceed the maximum limit of taxable earnings for 35 years. As mentioned, that figure is $147,000 in 2022.

Of course, most people won’t know right away if they qualify for the maximum amount, but anyone can use the my social security portal to estimate your future benefit.

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3. Retirement earnings limits will be higher, but a special rule applies for new beneficiaries

You can work while receiving Social Security, but your retirement benefit amount will be reduced if you are under FRA and your earnings exceed certain limits. In 2023, the lower limit is $21,240 and the upper limit is $56,520. The lower limit applies to anyone under FRA for the entire year, while the upper limit applies to anyone who achieves FRA during the year.

Specifically, for people under the FRA in 2023, $1 in benefits will be withheld for every $2 in earnings over $21,240. And for people who reach FRA in 2023, $1 in benefits will be withheld for every $3 in earnings above $56,520 before FRA. After you reach FRA, your benefit will not be reduced, no matter how much you earn.

Those rules put new retirees in a tough spot: Anyone leaving the workforce mid-year may already have exceeded the applicable earnings limit. Fortunately, a special rule addresses that situation.

If you claim benefits next year, you can receive a full Social Security check in any month that meets one of these requirements:

  • Under FRA for all of 2023: You earn $1,770 or less during the month and did not perform substantial self-employment service.
  • Arriving at FRA in 2023: You earn $4,710 or less for the month and did not perform substantial self-employment service.
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For clarification, “substantial services in self-employment” is defined as 45 hours of work per month for a general business, or between 15 and 45 hours of work per month for a business in a highly skilled occupation.

This Social Security Administration retirement earnings calculator can help you determine how much (if any) of your retirement benefit will be withheld if you remain in the workforce after Social Security begins.

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