Inflation has borne down heavily on the lowest earners—especially on those who are retired—with many dipping into savings to make ends meet and pay for gas, food, and other necessities. Luckily, 2023 will bring some relief, with the cost-of-living adjustment (COLA) increasing to 8.7%.
Published October 4th, 2022
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2023 will bring some relief for retirees, with the cost-of-living adjustment (COLA) increasing to 8.7%
This year's COLA adjustment is the largest increase in more than 40 years and is estimated to increase Social Security benefits by approximately $146 per month
The SSA estimates that retirees' average benefit will rise by $146 to $1,827 per month in 2023
Inflation has borne down heavily on the lowest earners—especially on those who are retired—with many dipping into savings to make ends meet and pay for gas, food, and other necessities. Luckily, 2023 will bring some relief, with the cost-of-living adjustment (COLA) increasing to 8.7%, as announced by The Social Security Administration on Thursday, October 13, 2022.
Cost-of-living Adjustment (COLA) in 2023
Thursday’s announcement confirmed what many economists predicted by increasing the number to 8.7%. 2023’s COLA adjustment is the largest increase in more than 40 years and is estimated to increase Social Security benefits by approximately $146 per month for nearly all beneficiaries starting in January 2023.
Given the inflation surge, those who collect Social Security benefits will receive a bump in their payouts next year. The annual cost-of-living adjustment (COLA) is based on the Department of Labor’s Consumer Price Index for urban wage earners and clerical workers (CPI-W). Economic analysts say 5.9% COLA in 2022 failed to keep pace with inflation, leading to many Americans feeling the burden of this decision last year.
The Social Security Administration stated “the 8.7 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 65 million Social Security beneficiaries in January 2023. Increased payments to more than 7 million SSI beneficiaries will begin on December 30, 2022.”
How Inflation Affects Cost-of-living Adjustments (COLA)
Many experts estimated that COLA would have increased above 10% this year, so this announcement comes as somewhat of a surprise given the impact that inflation has on daily expenses for most Americans.
The estimates leading up to this landmark decision changed monthly, based on the rate of inflation. Inflation cooled a bit in July (9.1% CPI-W), leading experts to believe that the COLA rate would be 9.3%, down a bit from previous projections of 10.1%. Subsequently, CPI-W continued to drop in August (8.5%) and slightly lower in September at 8.2%, according to the Bureau of Labor Statistics.
So, Thursday’s announcement fits squarely within most projections, albeit slightly lower than what most expected, given current CPI measurements.
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How Much More Money Will Beneficiaries Receive in 2023?
If you’re part of the 20% of married couples and 45% of single retirees that depend on Social Security benefits for more than 90% of your income, Thursday’s decision will make an immediate impact on your bottom line in 2023.
The SSA estimates that retirees' average benefit will rise by $146 to $1,827 per month in 2023. Over the course of the year, that’s an extra $1,752 in every beneficiary’s spending plan.
Reminder: The 8.7 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 65 million Social Security beneficiaries in January 2023. Increased payments to more than 7 million SSI beneficiaries will begin on December 30, 2022.
If you have provisional income over $25,000 (individual) or $32,000 (married couples), your social security is taxable. Your provisional income is calculated by taking your annual gross income, plus other tax-exempt income and 50% of social security benefits.
In addition, a rise in Medicare Part B premiums could reduce the take-home amount of this COLA increase, if you have your premiums deducted from your benefit payments (which is true for 70% of Part B enrollees). The premium increase is expected to be smaller than last year’s increase, however, and should be announced in October with the COLA rate hike.
How a Bigger COLA May Impact Social Security’s Solvency
This 8.7% COLA increase is the highest increase since 1981, when the rate jumped 11.2%. In fact, COLA has only risen above 7% five times since 1975, when it was introduced.
Critics of the increase are sounding the alarm that this record high COLA could impact Social Security’s projected depletion dates, which are currently expected to be depleted by 2035—when 80% will be payable—or even sooner according to some.
According to Maya MacGuineas, president of the Committee for a Responsible Federal Budget, this increase is “likely to bring the year of insolvency forward by a full year. It is just another reminder that procrastinating on addressing these imbalances leaves the people who depend on Social Security particularly vulnerable to a further deterioration in its finances.”
Frequently Asked Questions
Are future Social Security benefits adjusted for inflation?
Yes. COLA is assessed every year and directly accounts for inflation (CPI-W). While most years see some sort of increase, there have been some years (2009, 2010, 2015) when the rate stayed steady with no change.
How often are Social Security benefits adjusted for inflation?
The cost-of-living adjustments are reviewed and revised every year, with the new rate announced in October. This year’s announcement was October 13, 2022.
How does this affect retirees?
Most retirees spend the majority of their money on four things: housing, transportation, food and healthcare. As we approach periods of hyperinflation, it’s important to assess the cost of these necessities and note how much they are rising to reduce spending where it matters. Three of those categories, for instance, remained relatively low through the month of May, though there was a big jump in travel costs. Given that logic, it might make sense to put off any personal travel for a while. Logging your spending and reviewing your logs regularly will help you strategize for the future.
If you can, it makes sense to delay cashing in on your social security benefits as long as possible, ideally until you are 70 years old, when the yearly benefit increases cease. That way, you will receive the maximum amount owed to you.
You should talk to a retirement advisor to discuss how to get the most out of your investments. Some allocations, like Inflation Protected Bond Funds, will actually earn you money during periods of inflation.
With the rising prices of prescription drugs, gas, and food, the high cost-of-living adjustment is a necessary one. That said, the adjustment might not mean that much more in your pocket, depending on how you are taxed, your lifestyle, and any Medicare Part B premium increases. To ensure you will have enough to pay for 2023 and many years to come, speak to a retirement advisor to strategize your investments and savings.
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A professional content writer, C.E. Larusso has written about all things home, finance, family, and wellness for a variety of publications, including Angi, HomeLight, Noodle, and Mimi. She is based in Los Angeles.
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