The Social Security Increase 2023 - COLA
In December of every year, the Social Security Administration (SSA) adjusts and (usually) increases the following years’ benefits. When an increase is announced, people will see the changes in their Social Security checks in January of the following year. The reason for this Social Security check raise is the amount of increase is based on the cost of living. So when inflation is measured in July, September and October, the government uses that determination to give you a bit more money in your Social Security check starting the following January. How is the COLA Social Security raise going to affect you? That’s the question! But first, let’s take a look at the basics - how is the new Social Security COLA raise going to affect your monthly Social Security payment schedule?
What is COLA?
COLA is an acronym for Cost of Living Adjustment. Basically, this means that when inflation hits and the prices for basic necessities such as food, clothing, and housing rise in cost, the COLA kicks in as a buffer to increase your social security benefits to ensure you have more money to offset the rate of inflation so you can purchase the necessities.
How COLA is Calculated for Social Security Payment Schedules?
While this hasn’t been the case for the entire history of Social Security payments, Social Security benefits have been adjusted for inflation using COLA annually since 1975. Your social security benefits are adjusted using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This is the United States monthly price change measurement for goods and services, including food, energy, and medical care. Basically, the prices of the essentials you need for everyday living.
The CPI-W is a niche of the Consumer Price Index, which measures a wide range of retail prices. To determine the COLA, the average CPI-W for the third quarter prices are compared to the prices for the same period the year before.
COLAs for the previous 10 years averaged less than two percent. COLAs can range from zero (in 2015) to more than 10%, depending on the amount of inflation. In 2011, the COLA rose 3.6 percent. The biggest adjustment for Social Security recipients was 14.3% in 1980.
Can You Have a Year Without COLA?
Since the purpose of the COLA is to lessen the gap between inflation and the cost of living, you can have a year with no COLA. No inflation equals no COLA because you only have a COLA if inflation increases. This means there isn’t a raise in your social security benefits. The three years in which COLA didn’t rise above zero were 2009, 2010, and 2015.
COLA 2023 - Could This Be the Largest Increase to Social Security Benefits?
Next year could bring the biggest increase to Social Security benefits in almost forty years!
Because of the rising prices of food, gas, power, and housing, there have been economic forecasts of a nearly doubled cost-of-living adjustment (COLA) for 2023.
This inflation gauge used by the Social Security Administration (SSA) to set the annual COLA came in at 9.1 percent for July. However, you won’t see the increase in benefits until January 2023.
The best guess estimate is that the COLA for 2023 will be in the eight to ten percent range. This would be second to the 1981 COLA increase of 11.2%.
Although estimates are preliminary, the forecast for an increase in your social security payments is definite. However, the actual COLA will depend on changes in consumer prices through the end of September.
How Much Should I Expect to Receive with My COLA Social Security Raise in 2023?
To estimate what you may receive from the COLA in 2022, you can use this back-of-the-envelope calculation. A 9% percent increase in COLA would boost the average Social Security retirement benefit by approximately $150 a month starting in January 2023.
Will My Medicare Part B Affect the Amount I Receive from the COLA Adjustment?
While a rise in Medicare Part B premiums in 2023 would not directly affect your Social Security benefits, the rise in Medicare Part B premiums next year usually offset a portion of your COLA payment increase. For those Social Security recipients who have Medicare premiums deducted directly from their benefit payments, you’ll see a lower amount in your monthly increase of income. However, the 2023 Part B premium increase is expected to be less than this year’s record increase.
How Energy Prices Affect COLA
Energy prices are going to change and fluctuate over the next few months, changing the numbers in COLA. This may be the biggest deciding factor in the rate of COLA for 2023. And, if this trend continues, we are headed for COLA as big as 10% or more!
While the 2022 COLA of 5.9% increased the average retirement benefit by $92 a month, Social Security payments grew by an average of $20 a month on the back of a 1.3% adjustment.
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