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Social Security Benefits COLA to Increase for Seniors in 2023

Despite record-breaking inflation and a record-breaking cost of living increase, Social Security benefits are expected to increase by 8.7% in 2023 for beneficiaries. It has been 40 years since there has been such a significant increase. Social Security announced the news on Thursday, according to the agency. Medicare benefits will increase by an average of $140 per month in January, and the increase will take effect in February.

From $1,681 in 2022 to $1,827 in 2023, the average Social Security retirement benefit will increase by $146 per month or $146 more than in 2022. An independent senior group, the Senior Citizens League, estimated last month that the COLA might be as high as 8.7% next year.

The increase in benefits by 8.7% was confirmed by the Department of Labor, exceeding the 5.9% increase beneficiaries experienced in 2022. In the last 40 years, this was the highest level ever recorded. During the 1980s, when the cost-of-living adjustment was 11.2%, it was the last time it was higher.

“There has never been a more exciting day for older Americans, since their COLAs will rise, their (Medicare) premiums will decrease, and that means a lot more money in the pockets of older Americans every month,” said Cristina Martin Firvida (AARP’s Vice President of Government Affairs).

Even though beneficiaries have struggled with rising prices during the last few years, next year’s income is expected to reach record levels. According to Dan Adcock, director for government relations at the National Committee to Preserve Social Security, “The COLAs are really about people treading water; these are not increases in benefits,” he said.

In response to this, Adcock said, “They are more concerned with providing inflation protection so that people will be able to maintain their standard of living.”

What Should Your Social Security Check Be?

In January, beneficiaries will receive the 2023 COLA as a part of their benefit checks, beginning in February. Nevertheless, notices from the Social Security Administration will be able to be accessed online from December onwards. You will receive a notice in the mail informing you of the amount of your checks for the next year.

It is important to note that two factors can influence the size of your benefit check, Medicare Part B premiums, and taxes. Next year, the amount will be reduced by $5.20, from $170.10 to $164.90, as the amount will be reduced by $5.20. These payments are often taken directly from Social Security benefits checks.

You can achieve your retirement goals with the help of a retirement plan. According to Mary Johnson, Senior Citizens League policy analyst on Social Security and Medicare, you will achieve your retirement goals if you stick to a plan.

You may find that this will be different if you have money withheld from your monthly paycheck for tax purposes. Take your net Social Security benefit, add your Medicare premium, and then multiply that by the COLA for 2023 to find out how much extra you might be able to receive next year. The founder and president of Covisum, which provides software for filing Social Security claims, Joe Elsasser, is a certified financial planner with offices in Omaha, Nebraska.

How the COLA Is Linked to Inflation

About 70 million Social Security and Supplemental Security Income beneficiaries can take advantage of the COLA. Based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (or CPI-W), the price change has been made. The Social Security Administration calculates a COLA based on the change in the CPI-W between the third quarter of the preceding year and the current quarter.

There is no guarantee that benefits will increase every year. 2009 was a record year for growth with 5.8%, but the following two years saw a decline to 0%. According to Adcock, “Those years were difficult for seniors because they had to spend so much on their health care because they couldn’t afford it.”

There is a possibility that similar patterns could occur if the economy enters a recession shortly, according to Johnson.

What the COLA Is If You Haven’t Claimed Benefits Yet

The record-breaking COLA being offered as a result of Social Security will be available to you if you claim your benefits. If you wait until you begin receiving benefit checks later, Elsasser says that you will still be able to access the information. Each COLA will adjust the benefit until you claim if you are 62 or older and have not claimed your benefits yet.

It is possible to increase your monthly check by delaying benefits. To receive their Social Security benefits, experts recommend that people wait until they reach the age of 70. This is because, from the time you reach your full retirement age (normally 66 or 67) to 70, your benefits will rise by 8% each year. In addition to a person’s marital status and personal health, there may also be other factors that influence the effectiveness of this strategy.

According to Elsasser, the COLA amount should not be affected by claims submitted under the COLA. Whether you claim it or not, you will get it either way, so it doesn’t matter if you claim it.

How Record-High Increases Could Impact Social Security’s Finances

It was stated in June’s statement that the Social Security Trust Fund will be able to provide full benefits to seniors until 2035, according to the Social Security Board of Trustees. There is a projection that the program will be able to pay 80% of its benefits by then, based on the board’s projections.

The Committee for a Responsible Federal Budget reports that the historic high COLA of 2023 will likely accelerate the depletion of the trust funds to at least one calendar year earlier than expected. As a result, workers may be more inclined to pay higher wages, which could lead to them contributing more to the program in the form of taxes. There is a possibility that this will offset this. There will be an increase in the maximum taxable earnings in 2023 to $160,000. As compared to the previous year, this is an increase of $147,000.

Social Security trustees predicted a cost-of-living increase of 3.8% in their June annual report to the American public.

Shai Akabas, director of economic policy at the Bipartisan Policy Centre, has stated that the program’s overall cost will be approximately 5% higher than what was anticipated for next year. As for the cost-of-living adjustment for 2023 and how it will increase by 8.7%.

He pointed out that other factors, such as wage increases, migration, and mortality, could also impact the program’s finances. The impact of the 2023 increase on the depletion dates has not yet been determined, so it’s impossible to determine exactly how much.

What is the Future for Benefit Increases?

Even though COLAs will be increasing Medicare benefits at a record rate in 2023, beneficiaries need to be prepared for years when the increases will not be as dramatic.

If inflation falls, the size of COLAs will decrease as a result. Whether or not the CPIW is the best measure of the annual increase in prices remains to be debated. A better indicator of seniors’ costs is the Consumer Price Index for Seniors, or CPI–E, a measure of the consumer price index for seniors. As a result of several Democratic congressional bills, there has been a call for the CPI-E measure that calculates annual increases to be modified. It has also been suggested that the Chained CPI could be used to curb federal spending.