Social Security COLA Increase: What It Means For You

By Chapin Mower on October 28, 2022

In a year of record high inflation, millions of Americans have had their budgets squeezed.  For the beneficiaries of monthly Social Security checks, they are about to get some relief beginning in 2023, thanks to an increase of 8.7% in Cost-Of-Living Adjustments (COLA).  What does this all mean and why is it happening?  Let’s dive into it:

What is a social security cost of living increase?

COLAs are based on the increases in the Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers (CPI-W) and the CPI-Ws are calculated on a monthly basis by the Bureau of Labor Statistics.  When determining increases, the law requires that we use the average CPI-W for the third quarter of the previous year as the base average, which is divided by the average CPI-W for the third quarter of the current year.  [1]

How does this coming COLA compare with recent years?

For 2022, COLA rose 5.9% and the increases have been relatively minor for the past decade.  Additional reference points: for 2021, COLA rose 1.3% and in 2020 it rose 1.3%. in 2010, 2011 and 2016 there was no COLA at all.

Why is the COLA increase so high for 2023?  And is it guaranteed to keep up with 2023 inflation?

The COLA is based on the rate of inflation, which has run to its highest levels in over 40 years.  Therefore, the COLA for 2023 will also be the highest increase year over year in over 40 years.  The highest COLA increase came in 1980 at 14.3%. 

The COLA is also not guaranteed to keep pace with inflation.  For instance, this year’s 5.9% COLA failed to keep pace.  However, the COLA is designed to adjust benefits to rising prices in the Consumer Price Index for Urban Wage Earners and Clerical Workers.

What will my 2023 monthly Social Security payments be and when will I see the increase?

To calculate your new Social Security benefit, multiply the 8.7% COLA by your monthly Social Security benefit this year.  You will see that increase in monthly payments beginning in January of 2023.

Will I lose some of my COLA increase to higher Medicare premiums?

In most years, yes, but not in 2023.  The standard monthly Part B premium, which covers doctor visits and other forms of outpatient care, will decline by $5.20, from $170.10 this year to $164.90 in 2023. Most Medicare recipients deduct those premiums from their monthly Social Security checks, so the falling premium allows them to keep the entire COLA—plus the premium savings.

The Part B premium reduction is due in part to lower-than-expected Medicare spending for Alzheimer’s disease drug Aduhelm. The decrease comes after Part B premiums rose 14.5% to $170.10 a month in 2022 from $148.50 a month in 2021. [2]

What actions do I need to take?

As an HMA client – nothing!  Our financial planning software will automatically adjust benefits for the COLA increase.  Keeping inflation adjust income in focus – that’s HMA!

[1] https://www.ssa.gov/oact/cola/latestCOLA.html#:~:text=COLA%20Computation&text=Also%20shown%20in%20the%20table,December%202022%20is%208.7%20percent.

[2] https://www.wsj.com/articles/social-security-cola-increase-what-it-means-for-your-benefits-11665573391