Social Security Benefits Increase in 2023 — What Does That Mean for Your Finances?
Anytime you receive more money every month, it can feel like winning the lottery — at least at first. The news that social security benefits are increasing in 2023 probably makes you very happy. But before you count your chickens, it’s smart to know the details. How much more can you expect every month?
Why Are Social Security Benefits Increasing in 2023?
As you know, prices have skyrocketed throughout 2022. To keep the value of benefits consistent and help retirees adjust to inflation, the Social Security Administration implements an annual cost-of-living adjustment.
As inflation rises, so does the COLA. Starting in January 2023, the COLA will increase by 8.7%. That's the largest increase in over 40 years.
How Much Will Your Social Security Benefits Go Up Every Month?
Social security payments depend on several factors, including your retirement age. On average, benefits will increase by $146 monthly, pushing payments to $1,827 a month. In a year, that means taking home an extra $1,752.
For retirees who waited until full retirement age to collect benefits, the numbers are even better, potentially jumping from $3,345 a month to $3,627. That’s a difference of $282 every month and over $3,300 for the year.
What Should You Do With the Extra Funds?
This is the part that confuses many retirees. You may see an increase in benefits and immediately start envisioning the things you want to do, such as going on vacation or leasing a new car.
The problem is that the increase in benefits is directly related to inflation. In other words, you’re not really making extra money. When you factor in the added costs of goods, your finances will probably either break even or result in losing money. COLA increases are like a life preserver, not a cruise ship.
What About Taxes?
Remember to factor in the increased benefits when calculating your taxes. Depending on your annual income, you may pay taxes on 50% or 85% of benefits. The last thing you want is for the extra funds to push you into a higher tax bracket. Talk to your tax preparer ahead of time to decide the best way to avoid overpaying.
What Will Happen With Inflation in 2023?
How the economy will respond in 2023 is anyone’s guess, but many analysts expect high costs to continue for a long time still. That said, they may have finally hit the highest point.
This isn’t the first time Social Security Benefits have increased. They went up by 5.9% in 2021 and 1.3% in 2020. If inflation stays high, next year there may be another increase.
There’s nothing wrong with taking a vacation if you’re stressed and have the money for it, but don’t include increased social security benefits for your plan. Keep those funds for essentials, such as Medicare premiums (which are decreasing slightly, by the way) and groceries. The important thing is to focus on the here and now, using benefits wisely and saving money where you can.