3 Changes to Social Security for New Retirees in 2023

(Trevor Jennewine)

Each year, approximately three million Americans begin receiving Social Security retirement benefits, at which point they are referred to as retirees by the Social Security Administration, 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 percent of retired workers, according to Gallup, and applying for benefits too early (or too late) can be a costly mistake.

Once you have made the decision to apply for retirement benefits, you need to stay informed about the social security program. For example, the Social Security Administration recently announced several major changes that will take effect next year.

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

Image source: Getty Images.

1. The maximum taxable income limit will increase

If you are going to work next year, before or after applying for retirement benefits, you may be paying more in social security taxes. In general, the upper limit of taxable income increases each year to take into account wage inflation. For example, up to $ 147,000 in income is subject to Social Security payroll tax in 2022, but that figure will increase by 9% to $ 160,200 in 2023.

This means that an extra $ 13,200 income will be subject to tax next year. The tax rate is 12.4%, but employees pay only 6.2% (i.e. the employer pays the other half). This means anyone earning 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 greater

The amount of your retirement benefit depends on your life salary and age. Specifically, a formula is applied to your average, inflation-adjusted earnings of the 35 highest-paid years of your career. The output is the amount of primary insurance (PIA), the benefit you will receive if you apply for social security at full retirement age (FRA).

Anyone claiming benefits before FRA receives a permanent reduction and anyone claiming benefits after FRA (up to 70 years) receives a permanent increase.

The PIA formula is adjusted annually to take into account wage inflation. This means that the maximum benefit payable to new retirees typically increases from one year to the next. This chart shows the maximum benefit amounts for 2023.

Age at which retirement benefits begin

Maximum amount of benefit


$ 2,572


$ 3,279


$ 3,506


$ 3,808


$ 4,555

Data source: Social Security Administration.

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

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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 their future benefit.

3. Retirement income limits will be higher, but a special rule applies to new beneficiaries

You can work while at Social Security, but your pension benefit amount will be reduced if you are under FRA and your income exceeds certain limits. In 2023, the lower limit is $ 21,240 and the upper limit is $ 56,520. The lower limit applies to anyone who is in FRA for the full year, while the upper limit applies to anyone who reaches FRA during the year.

Specifically, for people subject to FRA in 2023, $ 1 in benefits will be retained for every $ 2 of earnings that exceed $ 21,240. And for people who reach FRA in 2023, $ 1 in grants will be retained for every $ 3 of earnings that exceed $ 56,520 before FRA. After reaching FRA, your advantage will not be reduced, no matter how much you earn.

These rules put new retirees in a difficult position – anyone who leaves the workforce mid-year may have already exceeded the relevant earning limit. Fortunately, a special rule addresses this situation.

If you apply for benefits next year, you can receive a full Social Security check every month you meet one of these qualifications:

  • Under FRA throughout 2023: You earn $ 1,770 or less during the month and have not done substantial services as self-employment.
  • Reaching FRA in 2023: You earn $ 4,710 or less during the month and have not done substantial services as self-employment.
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To clarify, by “substantial services in self-employment” we mean 45 hours of work per month for a general enterprise, or between 15 hours and 45 hours of work per month for an enterprise with a highly skilled occupation.

This Social Security Administration retirement income calculator can help you determine the amount (if any) of your retirement benefit that will be withheld if you stay in work after starting Social Security.

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