Seniors and others who rely on Social Security payments will likely see a big increase in their monthly benefits starting in early 2023. With inflation at a 40-year high in June 2022, the annual Social Security increase, otherwise known as the cost-of-living adjustment (COLA), is projected to be significantly higher than in recent years.
In this article, we are going to explain in detail what you can expect for the 2023 COLA increase and when the final COLA will be announced.
- What is Social Security COLA?
- Rising Inflation and COLA
- Social Security increase for 2023 could reach double digits
- Are COLA Increases Catching up with Inflation?
- How is COLA Calculated?
What is Social Security COLA?
The Social Security Administration (SSA) is required by law to prevent inflation from eating into the buying power of the nearly 69 million Americans who receive benefits.
To do this, the SSA uses a Social Security COLA formula based on the consumer price index to adjust payouts every January.
Since prices typically rise, payouts typically rise also. If prices ever fell, payouts would stay unchanged until prices catch back up again.
The COLA is calculated from the third quarter (July through September) Department of Labor’s Consumer Price Index (CPI-W).CPI-W.
Rising Inflation and COLA
Inflation continues to rise over the last year, hitting a record in June 2022 of 9.1%.
Here are the inflation numbers since January 2021:
| Date | Inflation Rate |
| June 2022 | 9.1% |
| May 2022 | 8.6% |
| April 2022 | 8.3% |
| March 2022 | 8.5% |
| February 2022 | 7.9% |
| January 2022 | 7.5% |
| December 2021 | 7.0% |
| November 2021 | 6.8% |
| October 2021 | 6.2% |
| September 2021 | 5.4% |
| August 2021 | 5.3% |
| July 2021 | 5.4% |
| June 2021 | 5.4% |
| May 2021 | 5.0% |
| April 2021 | 4.2% |
| March 2021 | 2.6% |
| February 2021 | 1.7% |
| January 2021 | 1.4% |
Social Security increase for 2023 could reach double digits
Based on the new inflation numbers released for June 2022, CNBC estimates that the cost-of-living adjustment will be 10.5% for 2023.
This would be the highest increase in 42 years.
A 10.5% COLA would amount to a $175.10 increase to the average monthly retirement benefit of $1,668, according to the CNBC report.
With that increase, the average Social Security benefit will rise to $1,843 a month.
In comparison, the CNBC estimates from the past two months indicated the COLA for next year might be 8.6%.
This shows how the rising inflation is leading to higher and higher COLA predictions for 2023.
Social Security recipients got a 5.9% cost-of-living increase in 2022, which was also a 40-year high.
COLA for 2023 will be announced in October 2022 and take effect in January 2023.
Are COLA Increases Catching up with Inflation?
Social Security’s cost-of-living adjustments are designed to help retirees keep up with inflation.
However, those annual adjustments haven’t done a great job of keeping up with the real cost increases seniors have faced.
For example, the COLA increase for 2022 was 5.9%, but over the past year, inflation has increased by 8.6%.
Additionally, even with annual COLAs, Social Security benefits have lost roughly 40% of their buying power since 2000, according to the Senior Citizens League.
How is COLA Calculated?
COLA is calculated based on the wage earners’ consumer price index.
Each year, the Social Security Administration (SSA) calculates the percent change between average prices in the third quarter of the current year with the third quarter of the previous year to determine the COLA.
The reason the fourth quarter isn’t used is that that number is typically not available from the U.S. Bureau of Labor Statistics until mid-January.
However, since the COLA is effective on January 1st, it is not possible to use the fourth-quarter data.
See how Social Security benefits are calculated.
Social Security Increase for 2023 Summary
Here’s the bottom line:
Inflation may push the 2023 Social Security Increase (COLA) to a record.
It is estimated that COLA for next year could reach 10.5% or more.
A 10.5% COLA would amount to a $175.10 increase to the average monthly retirement benefit of $1,668.
Bringing the average monthly Social Security benefit to about $1,843.
Questions?
If you still have questions, you should leave a comment below.
However, what may be an even greater help is to join our FREE Facebook members group about Making Sense of Social Security Benefits.
It’s a very active group with some really smart people who love to answer any questions you may have about Social Security Benefits.
Also, from time to time, our team of editors drop in to contribute and answer questions.
Finally, be sure to check out our other articles about Social Security and Disability Benefits, including:
