Social Security beneficiaries will receive a historically high 8.7% cost-of-living adjustment in 2023, the Social Security Administration announced this morning, meaning benefits to more than 65 million Americans will increase by more than $140 per month starting in January.
The average monthly retiree benefit of $1,656 will increase by $144.10 for 2023.
Social Security Administration
Specifically, the average monthly retiree benefit of $1,656 will increase by $144.10. To see how the 8.7% COLA will affect them, Social Security beneficiaries can calculate their 2023 monthly payment by multiplying their current payment by .087. The resulting number is their new payment amount for 2023.
“Medicare premiums are going down and Social Security benefits are going up in 2023, which will give seniors more peace of mind and breathing room. This year’s substantial Social Security cost-of-living adjustment is the first time in over a decade that Medicare premiums are not rising and shows that we can provide more support to older Americans who count on the benefits they have earned,” Acting Commissioner Kilolo Kijakazi said.
To view a COLA message from Acting Commissioner Kijakazi, please visit www.youtube.com/watch?v=Vgm5q4YT1AM.
Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $160,200 from $147,000.
Increased payments to more than 7 million SSI beneficiaries will begin on December 30, 2022.
Why it is historically high
The 8.7% COLA raise is the biggest since 1981.
“This may be the first and possibly the last time that beneficiaries today receive a COLA this high. There were only three other times since the start of automatic inflation adjustments that COLAs were higher,” The Senior Citizens League’s Mary Johnson points out, referring to the period between 1979-1981 when COLAs were 9.9%, 14.3% and 11.2%. [Check out the annual COLA for every year since 1975 HERE]
Since 2000, the annual Social Security COLA increase has averaged just 2.3% thanks to inflation remaining remarkably tame through the various economic swings of the century—until the past year.
Prior to 2022’s 5.9% COLA, the annual increase had not approached 5% since 2009’s 5.8% increase on the heels of the Great Recession. But the following two years had a 0% adjustment to benefits, something Johnson said we could be in for again if the country does go into a recession, as many pundits are predicting.
Johnson said that could add significant pressure to the finances of the Social Security Trust Fund and beneficiaries alike.
“About 90% of funding for Social Security benefits comes from payroll taxes. High unemployment during a recession could cause a significant worsening in the finances of the Social Security Trust Fund,” Johnson said. “In addition, an abrupt turn to deflation could mean that there may be no COLA payable in 2024.”
Since the 2008 financial crisis, there have been 3 years with no increases to Social Security benefits because inflation didn’t warrant an increase.
Keeping pace with inflation?
It’s too early to say how well the 8.7% COLA will keep pace with inflation in 2023. The 5.9% COLA received this year that raised the average retiree benefit to $1,656 per month is short about $43.80 per month on average, and by a total of $417.60 year to date according to TSCL’s Johnson.
That’s because the CPI used to determine the COLA puts too much emphasis on gasoline and transportation costs, Johnson said—items that retirees spend less money on compared with food, health care and housing.
“Indications are that the COLA will not reflect pockets of persistently high inflation affecting retired and disabled Social Security recipients,” Johnson said. “That puts tens of millions of retirees at risk of continuing to fall behind.”
Medicare Part B decrease helps
It is important to remember that Social Security beneficiaries will see more of the COLA increase reflected in their monthly benefit checks due to the fact that Medicare Part B premiums, which are deducted directly from benefit checks, are set to decline slightly in 2023.
In late September, the Centers for Medicare & Medicaid Services (CMS) announced that the standard monthly premium will decrease by 3% or $5.20 per month next year to $164.90, down from this year’s $170.10.
The annual deductible for Part B will also decrease from $233 in 2022 to $226 in 2023.
“This will mean that most beneficiaries will see more money after deduction for Medicare premiums,” Johnson said.
How COLA is determined
The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics.
The CPI data for September, also released this morning, shows inflation ran at 8.2% over the past 12 months before a seasonal adjustment and was 0.4% from August to September on a seasonally adjusted basis.
The official 2023 Social Security COLA was determined by the Social Security Administration based on a subset of the CPI data known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. The Social Security Administration determines the annual adjustment by calculating the percentage change in the CPI-W from the third quarter of the previous year to the third quarter of the current year.
Resources available
Social Security and SSI beneficiaries are normally notified by mail starting in early December about their new benefit amount. The fastest way to find out their new benefit amount is to access their personal my Social Security account to view the COLA notice online. It’s secure, easy, and people find out before the mail arrives. People can also opt to receive a text or email alert when there is a new message from Social Security—such as their COLA notice—waiting for them, rather than receiving a letter in the mail. People may create or access their my Social Security account online at www.ssa.gov/myaccount.
SEE ALSO:
• Medicare Part B Premiums Will Decrease in 2023: CMS
• Final 2023 Social Security COLA Estimate Before the Real Thing: 8.7%
• New Bill Seeks to Abolish Tax on Social Security Benefits
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.