Social Security recipients hoping for more cash to spend in 2023 should be pleased by the Oct. 13 announcement from the Social Security Administration.
After receiving a 5.9% increase in their benefits for 2022 — a year during which the annual inflation rate ended up climbing as high as 9.1% — Social Security recipients will see the biggest cost-of-living adjustment (COLA) since the early 1980s: 8.7%.
Read on to find out what this means for monthly Social Security payments, when retirees will start receiving the bigger payments, and more.
What the COLA means for the average payment
The average retired worker’s payment of $1,681 per month in Social Security benefits will be $1,827 after the COLA for 2023 takes effect, according to federal estimates. That’s an extra $146 each month.
The average retired couple’s collective payment of $2,734 per month will be $2,972. That’s an extra $238 monthly — for two people.
When the COLA takes effect
The 2023 COLA will take effect in January for more than 65 million recipients of Social Security benefits.
It will take effect on Dec. 30 for more than 7 million recipients of Supplemental Security Income (SSI) benefits — which are income supplements for people who are elderly, blind or disabled, and who have little to no income.
How the 2023 COLA compares
For context, the COLAs for the past decade were:
- 2022 — 5.9%
- 2021 — 1.3%
- 2020 — 1.6%
- 2019 — 2.8%
- 2018 — 2%
- 2017 — 0.3%
- 2016 — 0% (no adjustment)
- 2015 — 1.7%
- 2014 — 1.5%
- 2013 — 1.7%
For a deep dive into how this rate has changed over time, check out “The Social Security COLA the Year You Were Born.”
What is a COLA?
Cost-of-living adjustments are meant to counteract the effect of inflation. As the Social Security Administration describes it:
“The purpose of the COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation.”
By law, Social Security COLAs are tied to the federal government’s Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the third quarter of the year — specifically, the change in the index since the same period of the prior year.
When the CPI-W shows no average change over those four quarters, or if it decreases, there is no Social Security COLA for the next year.
As the federal Bureau of Labor Statistics defines it, a consumer price index is “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”
Why the current COLA system has critics
Critics argue that it’s unfair to tie Social Security retirement benefits to the CPI-W because it’s based on costs that workers commonly incur — which can differ significantly from costs that retirees face.
In fact, an analysis by the Senior Citizens League found that Social Security retirement benefits lost 40% of their purchasing power from 2000 to 2022. This is due to retirees’ expenses increasing faster than Social Security COLAs, according to the league.
Why your 2022 COLA could be less than you think
When Social Security recipients also have Medicare health insurance, their Medicare Part B premium generally is deducted from their Social Security payments. (Part B is the component of Medicare that covers doctor visits and other outpatient services.)
So, if a big jump in the COLA coincides with a big jump in the Part B premium, the premium increase essentially could cancel out part or all of the COLA.
The Medicare Part B premium will be about 3% smaller in 2023 than it was in 2022, as we reported in “Multiple Medicare Costs to Drop in 2023.” But Part B increases have outpaced COLA increases over the past two decades.
A 2021 analysis by the Center for Retirement Research at Boston College found that between 2000 and 2020, the average annual Part B premium increase was 5.9% while the average annual Social Security COLA was only 2.2%.
Around December, the government will notify Social Security recipients of the exact amount of their 2023 COLA after Part B premiums are deducted. It will mail the notice and also send a digital copy to beneficiaries via their online Social Security account.
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