New retirement limits and Social Security adjustment announced for 2023

Tuesday, November 1, 2022

The Social Security Administration announced that Social Security benefits will increase 8.7% next year due to the cost-of-living adjustment. The increase will go into effect in January, and the average benefit will jump to $1,827, according to the Social Security Administration website.

The new full retirement age monthly maximum benefit will increase to $3,627, an increase over 2022 of almost $300 per month.

In conjunction with the maximum monthly benefit is the maximum amount of earnings that are subject to Social Security taxes which will be $160,200, an increase of over $13,000 from 2022.

Also increasing are limits on how much you can save in retirement accounts. The new limits for 401k contributions will be $22,500 in 2023, up from $20,500 in 2022.

In addition, if you are over age 50 your “catch up” contribution will be $7,500, up from $6,500 in 2022. This means that in the year you hit age 50, you can defer $30,000 in either, not both, your traditional pre-tax or Roth option (if available in your plan) 401K.

The increases to Social Security benefits and the new increased limits in retirement savings are a result of higher than normal levels of inflation that we have experienced this year. Rate hikes that the federal reserve implemented combined with easing supply chain issues could lead to reduced inflation in 2023. Increased benefits and new limits in retirement savings along with an easing in inflation would be a win-win. We can only hope.

Another area that could provide financial relief is the increasing income thresholds in the marginal tax brackets. For example, in 2022 income from $10,276 to $41,775 is taxed at 12%. In 2023 income from $11,001-$44,725 will be taxed at 12%. In addition, the standard deduction is increasing to 27,700 for married filing jointly, up $1,800 from 2022.

These are just the highlights among many changes that could affect you in 2023. Be sure to work with your accountant and financial advisor to develop the best plan for you.

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Advisory services are offered through Innovative Financial Planners, LLC, an Investment Advisor in the state of Missouri. Insurance products and services are offered through Innovative Insurance Consultants, LLC, an affiliated company.

The information contained in this article have been derived from sources believed to be reliable, but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed.