In addition to kicking off a new year, Jan. 1, 2023, ushered in several changes to programs and financial issues affecting seniors. The most notable is a significant increase in Social Security benefits, but there are several other essential developments seniors and those planning for retirement should know about. We'll take a closer look at important changes you should be aware of in 2022 below!
5.9 Percent Increase to Social Security Payments
2023 marks the largest Social Security cost-of-living adjustment (COLA) in 40 years.1 This increase in federal benefits affects an estimated 70 million people, according to the U.S. Social Security Administration. Here's a look at the estimated financial impact of the COLA adjustment based on averages for different types of Social Security beneficiaries:
|Beneficiary type||2021 average monthly benefit||2022 average monthly benefit||2022 average monthly increase||2022 average annual increase|
|All retired workers||$1,565||$1,657||$92||$1,104|
|All disabled workers||$1,282||$1,358||$76||$912|
|Retired couple, both receiving benefits||$2,599||$2,753||$154||$1,848|
|Widow/widower with two children||$3,009||$3,187||$178||$2,136|
|Disabled worker or spouse with at least one child||$2,250||$2,383||$133||$1,596|
This 5.9 percent cost-of-living increase also applies to approximately 8 million Supplemental Security Income (SSI) beneficiaries. The table below breaks down the estimated 2023 maximum federal SSI payment amounts based on recipient.2
|Beneficiary type||2021 annual benefit||2022 annual benefit||2022 annual increase||2022 maximum monthly benefit|
There are also some changes to the funding mechanism for Social Security benefits. The payroll tax, which provides the program's funding, remains at the same rate, but the maximum taxable earnings rose from $142,800 to $147,000. This figure has increased annually since 2016.
Pro Tip: The SSA's my Social Security account is a virtual lifeline to your retirement savings. Our step-by-step guide shows you how to create an online Social Security account.
Earnings Test Limit Increases Slightly
Another change that impacts older adults who are drawing Social Security while continuing to work is a modest increase to the earnings test limit. This refers to the amount of income a recipient could earn before the government would begin withholding benefits.
In 2022, the limit for those drawing Social Security benefits who haven't yet reached full retirement age rose to $19,560, up from the 2021 limit of $18,960. Once recipients surpass that limit, the government will withhold one dollar of Social Security benefits for every two dollars they earn.
FYI: The full retirement age is 66 or 67 for most Americans, depending on the year they were born.
For those who will hit that magic full retirement age in 2022, the limit increases to $51,960 (up from $50,520 in 2021), and a $1/$3 ratio applies. In other words, the government will withhold one dollar of Social Security benefits for every three dollars you earn. On the other hand, those who earn income after reaching their full retirement age continue to face no earnings limit or withholding ratio.3
Medicare Part B Premiums, Deductibles Climb Again
The Centers for Medicare & Medicaid Services (CMS) report that Medicare Part B premiums, deductibles, and coinsurance rates are adjusted each year according to the Social Security Act. For 2022, both the standard monthly premium and annual deductible are higher for Medicare Part B. Keep in mind, your adjusted gross income dictates the premium you'll pay, and higher earners will pay more.4
|Medicare Part B||2021 rate||2022 rate||2022 increase|
|Standard monthly premium||$148.50||$170.10||$21.60|
Did You Know: Medicare Part B plans pay for certain medical services not covered by Medicare Part A. Our Medicare Part B guide provides an in-depth look at cost, coverage, and enrollment.
Gift and Estate Tax Exemption Limit Rises Slightly
The gift tax exclusion rose for the first time since 2018. In 2022, an individual can give up to $16,000 to anyone they choose without tax implications. For example, if you have two children and three grandchildren, you can gift each of them a maximum of $16,000 annually (up from $15,000 in 2021).
The 2023 estate and gift tax exemption lifetime limit climbed to $12.06 million per individual (from 2021's $11.58 million). This inflation-adjusted figure refers to the lifetime limit on any estate or gift tax exemption for money, property, and other assets.5
Did You Know: Our estate planning for seniors guide has everything older adults need to know about wills and estate planning.
Standard Tax Deduction Inches Up
The standard deduction amounts taxpayers can claim for the 2022 tax year (the return you'll file in 2023) increase slightly.6
|Taxpayer filing status||2021 standard deduction||2022 standard deduction||2022 increase|
|Individual; married filing separately||$12,550||$12,950||$400|
|Head of household||$18,800||$19,400||$600|
|Married filing jointly||$25,100||$25,900||$800|
Quick Tip: Whether you choose the standard deduction or plan to itemize deductions, there are several ways older adults can reduce their tax bills. Head to our guide to tax credits and deductions for seniors to learn how to minimize your tax burden.
401(k) Contribution Limit Increases
There's a new limit for individuals who participate in a 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.7 The maximum individual contribution limit for 2022 is $20,500 (up from $19,500 in 2021). However, annual and catch-up IRA contributions remain unchanged for 2022. Those aged 50 and older can contribute up to $7,000 per year to their traditional IRA ($1,000 of which is considered a catch-up contribution).
Quick Tip: Working on your finances? Head to our 2023 guide to finance for seniors to learn more.