Last year, retirees received a 5.9% increase in social security benefits. That was the highest increase in forty years. This year, social security will increase by almost 9%, beating last year. This could be a welcome boost for those in retirement.

However, inflation has been rising since last year and continues to make it difficult for seniors to meet expenses. In January, the almost 6% cost-of-living adjustment to social security was still not enough for many retirees.

Retirees face challenges in 2023, but the year may still hold promises to come.
 

Social Security and

In 2022, the average benefit for retirees increased from about $1,560 to $1,650 per month, about $90 more. That increase reflects a 5.9% cost-of-living adjustment to aid seniors in retirement.

However, due to inflation, the average benefit did not meet monthly expenses, falling short by about $42 per month. Rising costs are hindering retirees across the nation, but some states feel the pressure even more.

For example, in January 2023, around 23 million California retirees also received an increase in state-sponsored payments. But residents here are still struggling with high gas and food prices.

Also, about 3 million low-income retirees will not get this extra boost because it is based on tax returns, and some families do not earn enough to file.

The full retirement age for Social Security is 67 for those who were born in 1960 or later. This is the age when retirees receive 100% of earned benefits.

Those who are eligible for Social Security can start receiving payments at age 62, but at a reduced rate. Retirees who were born in 1960 and start receiving Social Security at age 62 will get 30% lower monthly payments.

The current structure for social security goes back to amendments that were passed in 1983 to transition to 67 as the full retirement age. As the age for full retirement increases, beneficiaries who claim benefits at 62 will confront greater reductions.

These current guidelines can add more pressure to the prospect of retirement, and current proposals in Congress could push the full retirement age limit for those born in 1978 or later to age 70.
 

Retirement Savings

Some economists have criticized these adjustments to social security because they were based on 1980s thinking. Back then, 401(k) plans were expected to provide increased levels of support for retiring workers.

About half of private industry workers currently participate in employer-provided retirement plans. The idea that 401(k) and other employer plans would replace much of social security has not materialized.

Today senior poverty rates are increasing too, while minority workers and those with lower education struggle to save for retirement. Only about 30% of Hispanic households age 55 to 64 have any retirement savings, with about 36% of Black households.

Part of the problem is access to retirement savings accounts. An estimated 57 million US workers lack access to such plans. This includes people working in service industries, part-time workers, restaurants, daycare centers, and auto shops.

Yet, with these retirement challenges, options remain.
 

Options for Retirement Savings

Financial advisors recommend opening a Roth IRA if a worker does not have access to an employer 401(k) plan. These Individual Retirement Accounts allow for after-tax contributions that will grow tax-free and not face taxes upon withdrawal in retirement.

Workers may also opt for a traditional IRA to save on a tax-deferred basis. This year individuals can place up to $6,500 in these accounts.

For business owners and those who are self-employed, a Solo 401(k) plan is another option. These accounts allow individuals to make tax-deferred or tax-free contributions with greater investment choices than employer 401(k) plans.

For those who are looking for social security benefits, there may be more help on the way. This month, a bill to expand Social Security was reintroduced to Congress.

If approved, the Social Security Expansion Act would result in those turning age 62 in 2023 receiving an additional $200 each month, adding up to $2,400 more per year.

To learn more about retirement benefits and savings, visit Benefits Depot. Retirement can be a challenge but there are resources to help.