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Wednesday, March 29, 2023
Social Security payments are going up in 2023
Key takeaways
The 8.7% COLA increase, which takes effect in January, could put an additional $140 (or more) in the pockets of Social Security recipients each month.
Gas, groceries and goods aren’t the only things going up these days.
Social Security benefits are, too.
While rising inflation is causing millions of Americans to watch their spending, retirees will be getting some much-needed financial relief in 2023. On October 13, the U.S. government announced people collecting Social Security will receive a cost-of-living adjustment (COLA) of 8.7%. It’s the biggest boost to Social Security payments in 40 years.1,2
The 8.7% COLA increase, which will take effect in January, could put an additional $140 (or more) in the pockets of Social Security recipients each month.
When costs heat up, COLAs do as well.
Every year since 1975, Social Security benefits have been reviewed and recalculated to help keep pace with inflation. It’s a way to protect the purchasing power of payments so they don’t lose their strength when things become more expensive. But if there’s no inflation, like in 2009, 2010 and 2015, there’s no COLA.
The Social Security Administration (SSA) analyzes data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to set the annual COLA. In general, the CPI-W measures the average cost changes for a variety of common products and services, like food, clothing and transportation.3 If there is least a 0.1% increase when comparing third-quarter numbers with the same period from the previous year (July, August and September), Social Security benefits will see some sort of spike.4
The largest jump in history occurred back in 1980 when the COLA skyrocketed to 14.3%.
It depends.
Many people (70%, actually) elect to have their Medicare Part B premiums automatically deducted from their Social Security checks.5 If you fall into this group, there is a chance a Medicare rate hike could offset any extra you receive from a cost-of-living adjustment.
However, after Part B premiums went up 14.5% from 2021 to 2022, they will decline by $5.20 for 2023. Even with the change, your premiums are still something to keep an eye on.6
Also, a higher COLA actually could do more harm than good for some individuals. If you’re a low-income senior, you may be looking forward to a bigger Social Security benefit because it may put more money in your wallet. But it could also put you above the legal income limits to qualify for certain government assistance programs, including food stamps, or even require you to pay taxes on your benefits.7
In 2021, roughly 65 million Americans received Social Security payments, according to the latest report from the SSA. The average benefit currently stands around $1,550 per month, even after a 5.9% COLA last year.8,9
However, Social Security was never designed to be a person’s sole or most prominent source of income once retired.10 Many financial professionals suggest you’ll need to have saved about 80% of your working income to cover your cost of living in retirement, and Social Security should help with a portion of that because it’s based on your total lifetime earnings. It’s a good idea to contribute to a 401(k) plan, an IRA or another tax-advantaged type of investment account to help grow your nest egg.
You can begin collecting Social Security checks as early as age 62. But if you’re not ready to file in 2023, you may get the best of both worlds. Not only will your benefits be higher the longer you wait to claim, but you’ll also be able to cash in on next year’s estimated COLA increase. You become eligible for COLA increases starting with the year you turn 62, even if you don’t apply until age 70. That’s because “inflation adjustments are baked into future payments” until you eventually draw.11
You can visit ssa.gov to manage your account or, if you haven’t already, create a username and password. Once you’re logged in, you’ll be able to view your profile page, earnings history and estimated benefits.
1 CNBC, “Social Security cost-of-living adjustment will be 8.7% in 2023, highest increase in 40 years,” October 2022.
2 AARP, “Social Security COLA 2023: How Much Will Benefits Increase Next Year?,” August 2022.
3 CNBC, “High inflation points to bigger Social Security cost-of-living adjustment for 2023,” March 2022.
4 AARP, “What’s the Cost of Living Adjustment for Social Security?,” October 2021.
5 AARP, “What’s the Cost of Living Adjustment for Social Security?,” October 2021.
6 Forbes, “Medicare Premiums Drop In 2023, But That’s Not The Full Story,” October 2022.
7 CNN, “Social Security checks could grow by about $175 a month as the cost of living continues to surge,” July 2022.
8 Social Security Administration, “Understanding the Benefits,” 2022.
9 CNBC, “High inflation points to bigger Social Security cost-of-living adjustment for 2023,” March 2022.
10 SSA.gov
11 USA Today, “Social Security benefits hike could bring retirees extra $1,800 in 2023,” August 2022.
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Ray is a longtime professional journalist who has produced stories on a diverse range of topics, from community to people to money. He is now a writer for Empower focusing on financial health and well-being.
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