Social Security Benefits COLA 2023: What You Need to Know

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During the past few months, the United States has experienced the largest jump in inflation since the early 1980s. Seniors, especially those on a fixed income such as Social Security, are one of the most vulnerable groups negatively impacted and hurt the most by rising inflation and increased costs. If you are a retiree and taking Social Security, you’ll want to know what the cost-of-living adjustment looks like in 2023. Let’s focus on social security benefits COLA in 2023 and what you should know.

Social Security Benefits Cost of Living Adjustment (COLA) for 2023

In 1973, Congress passed cost-of-living-adjustments or COLAs so that Social Security and Supplementary Security Income (SSI) benefits would keep up with inflation. Automatic annual COLAs started in 1975. In 2023, the COLA is 8.7% for social security and SSI payments. Starting with December 2022 benefits, which are payable in January 2023, Social Security benefits will increase by 8.7%. This is the highest increase in decades. In fact, the last largest increase of this magnitude was 1982 where the COLA was 7.4%.

The following chart shows the cost of living adjustments to Social Security Benefits since 1975

DateCOLA AdjustmentDateCOLA Adjustment
July 19758.0%January 20002.5%
July 19766.4%January 20013.5%
July 19775.9%January 20022.6%
July 19786.5%January 20031.4%
July 19799.9%January 20042.1%
July 198014.3%January 20052.7%
July 198111.2%January 20064.1%
July 19827.4%January 20073.3%
January 19843.5%January 20082.3%
January 19853.5%January 20095.8%
January 19863.1%January 20100%
January 19871.3%January 20110%
January 19884.2%January 20123.6%
January 19894.0%January 20131.7%
January 19904.7%January 20141.5%
January 19915.4%January 20151.7%
January 19923.7%January 20160%
January 19933.0%January 20170.3%
January 19942.6%January 20182.0%
January 19952.8%January 20192.8%
January 19962.6%January 20201.6%
January 19972.9%January 20211.3%
January 19982.1%January 20225.9%
January 19991.3% January 2023 8.7%
Source: Social Security Administration

In recent years, the cost of living adjustments (COLA) has been somewhat low. There were time periods such as 2010, 2011, and 2016 where there were no increases to benefits because inflation was calculated as non-existent. The 8.7% increase is a pretty significant jump compared to what we’ve seen in recent years.

The average social recipient should see their monthly benefit rise $146 from $1,681 to $1,827. The exact amount of Social Security benefits you receive will vary based on your employment history and age when you first claimed Social Security.

The 8.7% increase also applies to people receiving Social Security Disability Insurance (SSDI). SSDI helps people with disabilities who are unable to work at all or at the same capacity as they once did. The average monthly benefit for disabled workers is increasing by $120 from $1,350 to $1,470 a month.

How was the 2023 COLA increase calculated?

COLA increases are tied to annual increases in the Consumer Price Index for urban wage earners and clerical workers (CPI-W) which are calculated monthly by the Bureau of Labor Statistics. The Social Security COLA is calculated by comparing the average CPI-W for the third quarter of the year that the most recent COLA became effective to the average CPI-W for the third quarter of the current year.

 CPI-W 2021CPI-W 2022
Total for Third Quarter805.262875.702
Average for Third Quarter268.421291.901

(291.901 – 268.421)/ 268.421 X 100 = 8.7%

Even though the COLA increase might seem like a significant boost, it might not be enough to offset rapidly growing inflation. The inflation rate averaged 8% in 2022. The largest increases included energy (gas & utilities), new and used vehicles, and food. The COLA increase is meant to help seniors and disabled people from losing purchasing power but is it enough?

inflation rate

Cost of Medicare

Medicare premiums actually declined slightly in 2023 but still require a growing portion of a retiree’s benefits. Medicare Part B covers doctor’s visits and outpatient services and the premium is deducted directly from your Social Security payments. In 2023, the Medicare Part P premium declined by $5.20 to $164.90. This is down from $170.10 in 2022. This premium amount applies to individuals earning $91,000 or less and married couples who earn $182,000 or less. If your earnings exceed this amount, your Medicare premiums will also be higher.

Social Security Benefits in 2022

In January 2022, the average Social Security benefit was $1,657 per month and $3,345 for someone who retires at full retirement age. If you retire at age 70 in 2022, the maximum benefit could be as high as $4,194. As of January 2022, 62 million people receive social security benefits.

Note: To earn the maximum allowable amount, a worker would have had to earn the maximum taxable amount ($147,000 for 2022) over a 35-year career.

Social Security is the largest source of retirement income for most Americans and provides nearly all income for 1 in 4 senior citizens. Social Security wasn’t meant to be the only source of income for people who retire. Social Security was meant to replace a percentage of a worker’s pre-retirement income based on that person’s lifetime earnings.  If you can delay claiming your social security benefits until full retirement age, you’ll increase your benefit monthly payout. Your full retirement age is based on the year that you are born. If you take an early retirement and start taking Social Security payments earlier than full retirement age, you’ll reduce your monthly benefit by about 0.5% per month.

For example, if your full retirement age is 67 and you take social security at 63, you’ll only get 76% of your full benefit.

.5% reduction *4 years *12 months = 24% reduction

By waiting until your full retirement age, you’ll get 100% of your monthly benefit. If you delay benefits and retire at 70, you’ll receive 132% of your Social Security benefit. If you maximize your work and earnings history and delay taking social security until 70, it’s possible that you can earn the maximum Social Security benefit. In 2022, the maximum Social Security benefit increased to $4,194 per month.

The COLA increase for 2024 will be determined sometime in October 2023.

A look at Social Security

Social Security is a tax that comes out of your paycheck. Earnings up to $147,000 are subject to Social Security tax. You pay 6.2% and your employer pays 6.2% of your wages to Social Security. If you are self-employed, you would pay 12.4% of income.

Social Security tax dollars go to a trust fund that pays monthly benefits of current retirees and their families as well as the surviving spouses and children of those who died. A portion of the tax dollars also goes to people with disabilities and their families.

The future of Social Security is uncertain and hotly debated. Life expectancy in the United States continues to rise. As life spans increase, Social Security total payouts are increasing. As more money is paid out, future beneficiaries are likely get a cut.

The number of retirees that are 65 or older will increase from about 57 million in 2021 to 76 million by 2035.  This is a huge increase in the number of Social Security beneficiaries. In order to pay these beneficiaries, the formulas need to be tweaked and additional revenue will be needed by the program.

There are also not enough workers to support the increased number of beneficiaries. There are currently 2.7 covered workers for every social security beneficiary. By 2035, there will be 2.3 covered workers for each beneficiary. If this trend continues, the Social Security trust will be depleted if changes are not made.

Pandemic Impact

Many people are retiring early due to the pandemic and interestingly, many are holding off claiming Social Security benefits. By delaying benefits, retirees can expect a larger monthly check in the future.  

Older adults are considering their health and working conditions. Many older adults might not know how to telework for their jobs. Others might feel the virus creates a dangerous workplace environment and it is not worth putting one’s self at risk. With the recent stock market runup and real estate market boom, many older adults have built a sizeable nest egg where they no longer need to work.

As more older adults are retiring and leaving the workplace, many industries are experiencing labor shortages. These shortages hurt economy recovery. With labor shortages, some employers are increasing salaries to fill job vacancies contributing to increased costs and inflation.

Those who are retiring should consider pre-pandemic expenses as a retirement spending benchmark. A good rule of thumb is to spend 70% or less of pre-retirement expenses. Many reduced spending during the pandemic but this was not a typical situation and new retirees should plan accordingly. Also, the incredible stock market and real estate performance is not sustainable and people should not expect such large returns over the near future.


People receiving Social Security should see their payments increase in 2023 but their payments will be slightly offset by increases in Medicare as well as increasing household bills.  Congress should act to protect Social Security and ensure that the Social Security trust fund remains solvent and continues to help the millions of Americans and their families who rely on Social Security payments.

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By Adam

Hey, I'm Adam. I started Wonder of Compounding in 2021 to help others learn about financial literacy and achieve their financial goals. I’m a lifelong student and eternal optimist with a passion for investing, technology and entrepreneurship. I’ve worked in the financial services industry for more than a decade. In 2008, I earned my Bachelor of Engineering and Master of Engineering from Stevens Institute of Technology and in 2015, I received my MBA from New York University.

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