Social Security Hike Spells Trouble for Younger Workers

What will Social Security benefits be like when I retire?

That’s the question I’ve been asking myself this week following news that benefits will increase 8.7% in 2023 to help retirees deal with still-surging inflation.?

It’s a much-needed bump considering core inflation rose to a 40-year high last month — more than almost anyone expected.?

Older Americans have been hit particularly hard this year both by rising prices and by shrinking investment portfolios as stock and bond markets plunge.?

The result: About 40% of private sector workers are pushing back their plans for retirement and 15% don’t think they’ll ever be able to stop working.?

Even before this year’s turmoil, Americans were facing a serious shortfall in retirement savings, in part because half of private-sector workers don’t have an employer-sponsored retirement plan. The US recently fell to 18th place in a global retirement ranking .?

Considering that bleak backdrop, news of a bump in Social Security checks — the biggest increase since 1981 — is one bright spot. Right??

Well, it’s complicated. The hike comes with a tax increase for many Americans, with wages subject to the Social Security payroll tax rising almost 9% next year. Plus, the revenue stream for the benefits in general is at risk as the number of retirees grows faster than the number of workers paying taxes.?

The proposed reforms don’t sound very fun: Raising the retirement age, trimming benefits, increasing payroll taxes, or some combination of the three.

You might not have much control over any of this, but there are ways to shore up your own retirement savings accounts. Our retirement reporter Suzanne Woolley has a few ways to get back on track . One important tip: Don’t try to time the market . And be careful where you draw extra cash from , if you need it during this chaotic year.?

I’m starting to think about best practices for my own 401(k), even though my target retirement date isn’t until 2060. The good news: I have lots of time to save. The bad news: I have to work for, like, 40 more years.

— Claire Ballentine

Wealth Score

For those trying to gauge where they stand financially, we recently launched WealthScore , a tool that allows users to get a financial health checkup by answering questions about their age, household size, income, spending, debt and assets. For the last few weeks, we’ve been sharing tips that correspond with the seven personal finance benchmarks measured by the tool. Here’s our final one, on how to prepare for retirement:

Check your retirement savings rate. The popular rule of thumb is to save at least 15% of your pre-tax income, and if at all possible to start doing that at age 25 in a tax-deferred account like a 401(k) or IRA. Wait until age 30, and Fidelity Investments bumps the suggested saving percentage to an annual 18% of income. Wait until 35, and the recommendation is to save 23% of income. High earners may need to save more in order to maintain their standard of living in retirement, since the amount they get in Social Security benefits will cover a smaller percentage of pre-tax income than it will for a lower-paid worker. T Rowe Price suggests that most people who want to retire at 65 should try to amass between seven and 13.5 times their pre-retirement gross income. One way to try and get there is to steadily increase the amount you put away by 1% a year, and to save more whenever you get a raise or bonus.

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Financial FAQ

Where’s the best place to store my emergency-fund cash?

Emergency funds are all about safety. They’re about having the money there when you need it. The goal is not to grow that money, take risk or have it locked up anywhere. It’s why the best place to hold an emergency fund is at some online bank that offers attractive interest rates. My two favorites are Ally and Marcus. Both offer over 2% interest right now and are fully liquid. I also love keeping them separate from where your checking account is so you are less likely to transfer money out for non-emergencies.

— Thomas Kopelman , co-founder and financial planner at AllStreet Wealth in Indianapolis

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