Social Security Cola 2023 87% Increase In Social Security Benefits By 2023
Amid record high inflation, Social Security beneficiaries will get an 8.7% increase to their benefits in the year 2023, the highest increase in the last 40 years. The Social Security Administration announced the change on 13 October 2022 in USA. It will result in a benefit increase of more than $140 per month on average starting in January 2023. Social Security benefits are set to rise by 8.7% by 2023, the 4th biggest increase since automatic inflation adjustments were introduced in 1975.
This cost-of-living adjustment will boost the average monthly checks retirees receive in January 2023 by $146 to $1,827, as per the Social Security Administration. That builds on last years 5.9% Social Security Cola 2023 increase, which was the largest bump since 1982. Before then, Cost-of-Living Adjustment increased by an average of 1.7% annually from 2010 to 2020.
Fact #: Most Older Beneficiaries Rely On Social Security For The Majority Of Their Income
Social Security provides the majority of income to most older adults. For about half of this group, it provides at least 50 percent of their income, and for about 1 in 4 older adults, it provides at least 90 percent of their income, according to multiple surveys and the Census Bureau study.
Most retirees have modest incomes, save for some at the top of the income spectrum. Most low-income older Americans have very little pension income, if any, according to the U.S. Census Bureau study. Among retiree households in the bottom third of the income distribution, most received no pension income. About 1 in 4 of these households lived on less than $20,000 in 2015, and about half lived on $50,000 or less, according to an Social Security Administration study that also matches survey and administrative data.
Social Security Cost Of Living 2022 Update
The Social Security Administration has announced that there will be a 5.9% Cost of Living Adjustment for 2022. The primary force behind this is overall rising costs in the wake of the COVID-19 pandemic.
The 5.9% COLA announcement from the Social Security Administration, which had been widely expected, affects 70 million people, about 60 million retirees plus disabled workers and spouses and children who receive benefits.
Of note, this years COLA increase is the largest single-year increase since 1982 – although, of course, a cost-of-living adjustment is never guaranteed in the first place. In 2009, 2010 and 2016, COLA bottomed out at zero percent. And in 2016, the COLA was a mere 0.3 percent – substantially lower than the 2.8 percent increase we saw in 2018. The 2021 COLA increase was only 1.3%.
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There is also considerable debate surrounding the COLA inflation measurements the government uses to calculate the annual adjustment. Some advocates believe that the calculation artificially lowers the “real” impact of inflation, especially on retirees that have been hit hard by a combination of lower real estate values, steep losses in retirement savings due to multiple market corrections that past 10 years, as well as staggering increases in health care and prescription drug costs. Meanwhile, certain lawmakers feel the government data actually overstates the actual inflation numbers.
Below is a table of historical SS COLA adjustments:
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Social Security Benefits Will Get A Big Raise Next Year But There Are Pros And Cons To The Situation
Since 1975, Social Security checks have received an annual cost-of-living adjustment to protect the buying power of benefits from inflation. Given the critical role Social Security plays in retirement and the toll inflation has taken on the economy this year, many retired workers are anxiously awaiting their “raise” in 2023.
Here are four important details about the massive Social Security COLA coming next year.
Image source: Getty Images.
Does The Cola Accurately Reflect The Inflation That’s Impacting Seniors
Some advocates say that it is falling behind, partly because the formula used by the Social Security Administration relies on an inflation measure called the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.
Some seniors and their advocates have argued that the CPI-W doesn’t accurately reflect the price pressures facing older Americans.
The CPI-W gives greater weight to gasoline and transportation costs, which are expenditures more common among workers who commute than retirees. It also puts less weight on medical costs, which are typically higher for older Americans.
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Social Security Disability Insurance 202: First Cola Increase Arrived This Week
Some SSDI beneficiaries saw the 2023 cost-of-living adjustment arrive on Tuesday. Here’s when the rest can expect their check.
Social Security Disability Insurance recipients can look forward to a big increase in this month’s check. This week, longtime SSDI beneficiaries received their first check for 2023. This check includes the 2023 cost-of-living adjustment, the modification the Social Security Administration makes annually to keep checks in line with inflation. When you get your money depends on two things: your date of birth and the year you first started receiving SSDI money.
SSDI follows a similar schedule to Social Security payments, unless you’ve been getting SSDI checks for several decades. We’ll explain below.
For more, here’s why Supplemental Security Income recipients are getting their COLA increase in December.
Medicare And Inflation Impact
The 2022 COLA, which increased the average retirement benefit by about $92 a month, was offset in part by a record $21.60-a-month hike in the standard Medicare Part B premium, which for most Medicare enrollees is deducted directly from Social Security payments.
2023 will see the opposite effect, with a larger COLA and a rare drop in premiums for Part B, the portion of Medicare that covers outpatient services such as doctor visits. That means that Social Security beneficiaries will see more money in their pockets next year, said Nancy Altman, president of the advocacy group Social Security Works.
The Centers for Medicare & Medicaid Services announced last month that the standard Part B premium will from $170.10 to $164.90 a month. The decrease reflects lower-than-expected Medicare spending on the new Alzheimers drug Aduhelm, savings the agency had pledged to pass on to consumers.
An inflation slowdown could also stretch the COLAs effect on Social Security beneficiaries spending power. Whereas consumer prices have risen at a faster clip than the 5.9 percent COLA throughout 2022, forecasters predict inflation will cool in the year to come.
Global financial forecaster Trading Economics projects U.S. inflation to decline to 4.4 percent by mid-2023, and personal finance publisher Kiplinger predicts a rate of 3 percent to 4 percent at years end.
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Highlights include:
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Some Beneficiaries Will Get A Bigger Tax Bill In 2024
The federal government started taxing Social Security benefits in 1984, but the income thresholds were high enough at the time that fewer than 10% of beneficiaries actually owed taxes on their benefit checks. Unfortunately, the income thresholds have never been adjusted for inflation, so each COLA since 1984 has pushed more beneficiaries above the income limit.
Today, about 50% of beneficiaries pay federal tax on Social Security benefits, and the 8.7% COLA in 2023 will push more recipients over the limit. That means some retired workers will get a bigger tax bill in 2024.
Tax liability depends on filing status and combined income, which is defined as modified adjusted gross income plus half of Social Security benefits. The chart below illustrates the combined income thresholds for beneficiaries based on their tax return filing status.
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Retired workers can use this calculator from the Internal Revenue Service to determine whether a portion of their benefits will be taxed. As a caveat, beneficiaries should also bear in mind that 12 states tax Social Security too.
Three Things To Keep In Mind
The 2023 COLA increase might be a double-edged sword for some, as it could be enough to trigger undesirable tax implications and other financial considerations. Those who receive needs-based income assistance, for example, should confirm whether the COLA increase could have any potential negative impact to their benefits eligibility.
COLA increases potentially could trigger larger income-adjusted Medicare premiums if theyre enough to push some higher earners into the next tax bracket. For 2022, individuals whose 2020 income exceeded $91,000 had to pay more for Medicare Parts B and D. In previous years, higher Part B premiums reduced or eliminated the benefit of a COLA increase for some recipients.
It is worth noting that premiums for Medicare Part B, which covers things like outpatient services, were higher than expected in 2022, climbing 14.5% over 2021. Thankfully, that will not be the case for 2023. Standard Part B premiums for 2023 are expected to be about 3% lower than 2022 levels, so the COLA increase should feel more impactful overall.
One last thing to keep in mind: All federal benefits must be direct deposited. So, if you havent already started receiving benefits, you need to establish electronic transfers to your bank or financial institution. Contact your financial advisor for more information.
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How Does This Year’s Cola Compare To Prior Years
The 8.7% hike for 2023 is the biggest since 1981, which is when the U.S. was experiencing another bout of high inflation.
That year, seniors got a benefit boost of 11.2%. There are only two other years when seniors received COLAs bigger than this year’s increase: 1980, when benefits got a 14.3% hike, and 1979, when benefits rose by 9.9%.
There have also been several years when beneficiaries received no bump at all, such as in 2009 and 2010, when the COLA was 0% due to flatlining inflation during the post-financial crisis years.
High Inflation Of 1970s Led To Annual Colas
Until 1975, it took a new act of Congress each time Social Security benefits were increased. In the 1970s, however, soaring inflation was quickly eroding the purchasing power of fixed pensions and benefits. The annual rate of inflation doubled to more than 12 percent between 1969 and 1974.
Congress enacted the COLA provision as part of the 1972 Social Security Amendments and automatic annual COLAs began in 1975. The first automatic Social Security COLA was 8 percent in 1975.
The 1975 COLA wasn’t the largest bump in Social Security history since automatic annual increases went into effect. That came in 1980, when benefits rose 14.3 percent an 11.2 percent increase followed in 1981.
The first two decades of the 21st century saw mostly modest COLAs, averaging around 2 percent per year . That has changed in the last two years, with surging prices, notably for food and fuel, producing the largest COLAs since the early 1980s.
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Here’s How To Check Your Cola Benefits Amount For 2023
Not sure how much money you’ll receive from the 2023 cost-of-living adjustment? Here’s how you can check.
Social Security beneficiaries can expect to see a significant increase in their benefit amount thanks to the cost-of-living adjustment increase in 2023. This increase will arrive through their January checks for Social Security, Supplemental Security Income or Social Security Disability Income. If you don’t want to wait for your check to arrive to see how much of a bump the COLA is giving you on your benefits, there are a few alternative ways available to you.
If you created an online My Social Security account by Nov. 15, you can now see by how much your check is boosted — we’ll explain below how to find the document with your COLA increase.
A My Social Security account will show you your current or expected future benefits, based on your expected retirement age and your work history. You can also get documents for filing your taxes, request a benefit verification letter or change your mailing address and other personal information.
Here’s how to access your Social Security benefits online, and what sort of information and features you’ll be able to access with your My Social Security account. If you receive benefits now, here’s the Social Security payment schedule for December. Also, Supplemental Security Income recipients will get their first increased check in December.
Social Security Information You Can See Online
When you sign in to your online account, you’ll be able to view your Social Security statements. If you don’t yet receive benefits, you’ll see an estimate of the amount you could receive when you do retire.
There’s a table that shows your monthly benefit amounts if you retire — for instance, if you were born in 1960 or later, your chart may show retirement at 62 years old , 67 years old and 70 years old . Note that these retirement ages may change in the future. The longer you wait to retire, the more money you could receive per month.
You can also see your eligibility and earnings information. If you’ve worked at least 10 years, you’ll have enough work credits — you need 40 — to receive benefits. If you click on Review your Earnings Record, you’ll see your taxed Social Security and Medicare earnings for each year you worked.
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What’s The Average Social Security Benefit In 2023
The average monthly Social Security check changes over time as older beneficiaries die and new ones sign up. The annual COLAs also play a role, and this year, it’s a pretty substantial one. The average Social Security check is projected to climb by $147 after the 2023 COLA goes into effect, bringing the average monthly benefit from $1,680 per month in December 2022 to $1,827 per month as of January 2023.
But again, this is just an average figure. You should have received a notice by mail from the Social Security Administration in December listing your 2023 monthly benefit. You can also look this up yourself in your my Social Security account. If you’re having trouble locating your new benefit amount or you believe the new amount is incorrect in some way, reach out to the Social Security Administration by phone or by visiting your local Social Security office for more information.
Cola 202: More Than Just A Benefit Boost
Starting in January 2023, seniors will receive an 8.7% increase in benefits to help account for surging inflation this year. For the average retiree, that will amount to roughly $140 more per month.
But next year’s COLA will affect more than just your monthly payments. It will also impact several other areas of Social Security, including:
- Higher earnings limits: If you continue working after filing for Social Security and you haven’t yet reached your full retirement age, your benefits could be reduced if your wages surpass a certain limit. In 2023, that limit is increasing — which means you can earn more before seeing benefit reductions.
- Higher wage cap: Not all income is subject to Social Security taxes. In 2022, only income up to $147,000 per year is taxed for Social Security purposes. But in 2023, that cap will increase to $160,200 per year. In other words, high earners could start paying more in Social Security taxes starting next year.
- Higher maximum benefit: Your benefit amount will depend on several factors, including your earnings, the length of your career, and the age you file. But there is a maximum you can collect. In 2022, that max is $4,194 per month, but as a result of the higher COLA, it will increase to $4,555 per month in 2023.
All Social Security beneficiaries will experience the effects of at least some of these changes, even if it’s just the historic raise from the 2023 COLA. But there could be even bigger shifts on the horizon.
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Rising Prices Lead To Biggest Cost
by John Waggoner, AARP, Updated November 23, 2021
The Social Security Administration announced Oct. 13 that its annual cost-of-living adjustment will be 5.9 percent, a boost to average retirement benefits of about $92 per month for individuals, starting in January. The 2022 COLA is the largest increase to Social Security benefits since the 7.4 percent hike that went into effect in January 1983. Until this year, COLAs have been modest, averaging a 1.65 percent increase annually over the past decade, with no gain at all to benefits in 2016. The increase that went into effect in January 2021 was 1.3 percent.
Todays announcement of a 5.9 percent COLA increase, the largest increase in four decades, is crucial for Social Security beneficiaries and their families as they try to keep up with rising costs, says AARP Chief Executive Officer Jo Ann Jenkins. The guaranteed benefits provided by Social Security and the COLA increase are more crucial than ever as millions of Americans continue to face the health and economic impacts of the pandemic. Social Security is the largest source of retirement income for most Americans and provides nearly all income for 1 in 4 seniors.
Social Security Cola Was Nearly 50% Behind Inflation In 2022 What It Could Mean For 2023
Imagine getting a $92 monthly raise at the beginning of the year and then seeing your average monthly expenses rise by more than $130 for the rest of the year. Thats what most Social Security recipients faced in 2022.
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A 5.9% cost-of-living adjustment in 2022 boosted the average payment for Social Security recipients to $1,656 a month from $1,564 in 2021, according to a new report from the Senior Citizens League, a nonpartisan seniors advocacy group. But with inflation running at 8% or higher for most of the year, the 2022 COLA was outdated almost as soon as it kicked in.
The Senior Citizens League estimates that the 2022 COLA fell short of actual inflation by an average of 46% a month. The average Social Security payment fell short by $42.35 per month, or more than $508 for the full year.
Even with inflation easing it fell to 7.1% in November, marking its first dip below 8% since February the rate is still well above the 5.9% COLA.
One result is that a rising number of U.S. seniors are living in or near poverty. Recent surveys of adults aged 65 and older by the Senior Citizens League found that one-third of survey participants reported applying for food stamps or visiting a food pantry over the past 12 months. Thats up from 22% in 2020. The survey also found that 17% of respondents have applied for assistance with heating costs, up from 10% in 2020.
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