4 good things retirees can look forward to in the new year
It’s been a tough year for many retirees on fixed incomes.
Rising prices, a turbulent stock market and concerns over a possible recession leave many older Americans stressed about their financial future.
But all is not gloomy. There are actually a few things to look forward to in 2023, including bigger Social Security checks and lower Medicare costs.
4 good things on the horizon for retirees in 2023
Here are four things people approaching or already in retirement can expect in 2023.
1. Social Security Checks Are Rising
If you’re on Social Security, you can expect your check 8.7% increase in January. This is the largest cost of living adjustment in four decades.
That equates to an additional $147 per month on average in your pocket.
Of course, there’s a reason for the record high cost of living adjustment (COLA) – inflation. The price of everything from groceries to housing keeps rising, so another 8.7% might not seem like much.
What makes this year different is that the COLA hike won’t be swallowed up by rising Medicare Part B premiums (more on that shortly).
Plus, if inflation starts falling next year, retirees will still get their higher Social Security checks — at least until the new COLA is calculated in October 2023.
2. Health insurance premiums are falling
Medicare beneficiaries will pay less for their Part B bounty next yearthe first drop in a decade.
The standard Medicare Part B premium will be $164.90 per month in 2023, down from $170.10 in 2022. The Part B deductible is also decreasing.
The combination of higher Social Security checks and lower Medicare Part B premiums is great news for retirees. Most years, Social Security COLAs are eaten up by rising Medicare costs. (Most retirees get their Part B premium deducted from their Social Security checks.)
This means more money in your pocket, which is good news in times of high inflation.
But the good news comes with a caveat: the small reduction in Part B premiums next year (down $5.20) is only a fraction of the increase retirees have supported in 2022, an increase of $21.60 compared to 2021.
3. Retirement account contribution limits will be higher in 2023
Do you want to retire in the next few years? You will benefit from an increased retirement account contribution limits in 2023.
Driven by galloping inflation, the tax authorities are skyrocketing 401(k) and individual retirement account (IRA) contribution limit faster than ever.
- The maximum amount you can contribute to a 401(k), 403(b), and most 457 plans increases to $22,500 from $20,500 in 2022, a record 9.8% increase.
- Contributions to IRAs will increase from $6,000 in 2022 to $6,500 in 2023, an increase of 8.3%.
These new caps are particularly beneficial for workers over 50 looking to catch up on their retirement savings.
- The catch-up contribution limit for 401(k) plans is increased from $6,500 to $7,500 per year for people age 50 and older.
- The catch-up contribution limit for IRAs is $1,000 per year in addition to your standard contribution limit.
4. Now is the time to be a saver
Interest rate keep on rising that the Federal Reserve is trying to suppress inflation.
It is therefore more expensive to take out a mortgage or car loan, but higher interest rates are great if you’re saving money.
Many retirees want a safe place to park their money. Maybe you’re selling your home to downsize and don’t want to risk putting the proceeds on the stock market. Or maybe you take minimum required distributions of your retirement accounts – and you don’t mind earning interest with a safe investment.
Next year is shaping up to be a great year for saving money. Interest rates on high yield savings accounts, money market accounts and certificates of deposit are higher than they have been for years.
In November, interest rates reached 3.75% to 4%. We are talking about rates reaching 4.5% by the spring. This means you could make even more money on your money in 2023.
Consider this: many high-yield savings accounts offer interest rates of 3% and above. In 2021, you were lucky to get 1.5%
CDs also enjoy higher rates, especially at online financial institutions. The average rate for a one-year CD was around 1.1% at traditional banks in November 2022 and 3.75% at online banks and credit unions.
Savers have another tool in their toolbox: Series I Bonds of the federal government.
I bonds are one of the safest investments you can buy. They are indexed to inflation and the variable rate resets every six months.
On November 1, the I bond rate was reset to 6.89%, down from its all-time high of 9.62%. The new rate is valid until May 1, 2023.
The overall rate is down, but there is a silver lining. On November 1, the Treasury Department announced a new fixed rate of 0.4%, the first time it has exceeded 0% since May 2020.
If you buy an I bond of US Treasury Department by the end of April 2023, you can lock in this fixed rate of 0.4% over the term of your bond — and it will be calculated in addition regardless of the variable inflation rate in the future.
I bonds can be a solid way for retirees to protect their money against inflation. You can purchase up to $10,000 of I Bonds each calendar year.
You must hold them for at least one year and you will lose three months’ interest if you redeem your I bonds one to five years after purchase.
High inflation has been difficult for many retirees in 2022, but good news is on the horizon.
If you try to protect your nest egg against rising costs, it makes sense to speak with a financial advisor or other professional who can help you create a personalized strategy.
Rachel Christian is a Certified Personal Finance Educator and Senior Writer for The Penny Hoarder.