Social Security COLA 2023: What You Need to Know

The Social Security Cost-of-Living Adjustment (COLA) keeps hitting new records. One of the many impacts of the pandemic, average retirees saw a 5.9% increase in their monthly payments in 2022. This year, they’re receiving an 8.7% increase — the largest COLA in 40 years.

What Is the Cost-of-Living Adjustment (COLA)?

Since 1975, the Social Security Administration (SSA) has made annual increases to Social Security and Supplemental Security Income payments. These increases are called cost-of-living adjustments because they counteract the rising costs of goods and services (also known as inflation).

Each year, the SSA bases the COLA on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) determined by the Bureau of Labor Statistics. If there’s no percentage increase in the index, there’s no COLA (as was the case in 2009, 2010, and 2015).

What’s Changed for 2023?

This year’s COLA, however, is the largest increase since 1981. Inflation didn’t show any sign of slowing down at the end of 2022, with September’s CPI-W climbing to 8.2% compared to the previous year. In response to record-high inflation rates, which were largely driven by spikes in rent and gas prices, the SSA set 2023’s COLA at 8.7%.

What Does This Mean for Retirees?

Among inflation fears, the good news is that the average retiree will get an 8.7% boost to their monthly benefit amount. For example, if you collected $1,600 each month last year, you should have started receiving about a $139 monthly increase starting in January 2023. Additionally, many experts believe we’ll see inflation rates decline this year. If that’s the case, Social Security beneficiaries may be able to pocket more of their benefit increase.

However, these benefits don’t impact all retirees in the same way. Inflation rates vary around the country, meaning Social Security checks may be better at protecting the purchasing power of retirees located in specific regions. There’s also concern about whether the cost-of-living adjustment is sufficient for retirees, especially those that rent, to cover rising housing costs.

Many retirees also have doubts regarding the way annual COLAs are calculated. The COLA formula is based on the CPI-W, which reflects the spending of working individuals and may not accurately represent that of retirees. Some retirees and policymakers have advocated for the use of the Consumer Price Index for the Elderly (CPI-E) instead.

Do you want to know more about how the Social Security COLA 2023 impacts your retirement plan? We’re here to help with our personalized and comprehensive financial planning services. Connect with us today to get started.