2023 Social Security COLA Changes
2023 will see some remarkable Social Security changes that will affect you if you are already retired and receiving benefits.
The last few years have seen a lot of upheaval in the financial lives of Americans. The global pandemic affected us all – some saved more money than ever before, and some had to dip into savings and investments to get by.
Then just as folks were looking forward to more normal economic times returning, they were hit with rapid inflation and rising prices. Luckily, the Social Security Administration increases benefits when a cost of living adjustment needs to be addressed.
“Make sure you have worked out an income-oriented strategy that gives you flexibility and freedom during retirement," says Peter Testani, Vice President of David Lerner Associates. "Each year you should check what the cost-of-living adjustment (COLA) will be, so you know exactly what amount you will be getting from the SSA.”
The Senior Citizens League estimates Social Security benefits could rise a further 9.6 percent over where it currently stands. This would mean a windfall of an extra $158.98 per month for the average retiree. The Cost-of-Living Adjustment estimate for 2023 is still preliminary, as there are still two months of data to gather before the official adjustment for next year is announced!
How does the COLA get calculated?
The Consumer Price Index, or CPI, is often thought of as “the inflation rate”. The SSA (Social Security Administration) uses a variant of the CPI known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. This is what they consider to be the most accurate for their calculations.
Each year the SSA works out what the Cost-of-Living Adjustment needs to be. They do this by finding the percentage change in the CPI-W from the third quarter of the year they are in, to the average from the third quarter of the previous year.
The Senior Citizens League predicts that the COLA could possibly go even higher than 9.6 percent. If inflation jumps more than we have seen over recent months, the COLA could be over 10 percent! Compare that to the 7.4 percent hike we saw in 1982, and we realize how big this change is in real terms.
2022 saw the largest Cost-of-Living Adjustment in 40 years, which made people sit up and take notice. That was just a 5.9 percent increase. We could see almost double that in the Social Security cost-of-living adjustment for 2023.
The numbers are staggering, especially since the SSA anticipates by mid-2030 the Social Security Trust Fund could be totally exhausted.
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