The Social Security Administration (SSA) announced today that approximately 70 million Social Security and Supplemental Pension Income (SSI) recipients would receive a 2023 Cost of Living Adjustment ( COLA ) of 8.7%. This is the biggest increase since 1981 when the COLA was 11.2% and a significant increase over the COLA of 5.9% last year. The recent major Social Security COLAs are not normal. In the ten years to 2021, benefits increased by just 1.7% on average.
8.7%The Social Security cost-of-living adjustment for 2023 means an increase of $146 per month in benefits for the average beneficiary.
SSI recipients will receive their first pay raise as in the past on December 30, 2022. Regular Social Security recipients will receive their first check in January 2023; The time depends on your date of birth. Your individual Social Security COLA notice will be available online in the Message Center of your My Social Security account in December. You may also receive your notification by mail.
This year’s increase is not surprising given the record inflation reflected in the Consumer Price Index (CPI) throughout 2022. The CPI is a measure of changes in the price consumers pay for a market basket of goods and is used to calculate the SS and SSI COLA each year.
Newly released data from the Bureau of Labor Statistics (BLS) pointed to a seasonally adjusted increase in the Consumer Price Index for all urban consumers (CPI-U) of 0.4% in September. Before the adjustment, the full index rose 8.2% year-on-year in September.
What would be the role of inflation
The sharp increase in the Social Security COLA this year means that last year’s inflation has also increased significantly. That’s because the Social Security COLA is derived from – and linked to – an increase in the Consumer Price Index for Urban and Office Workers (CPI-W), another indicator of inflation.
More specifically, the difference between the CPI-W of the third quarter of the previous year and the third quarter of the current year is the inflation rate and the next year’s COLA. By way of illustration, the difference between the IPC-W for the 3rd quarter of 2021 and the 3rd quarter of 2022 is 8.7%, which becomes the COLA of Social Security beneficiaries for 2023.
Medicare Part A and Part B Costs for the Year 2023
Unlike last year, Medicare Part B premiums for 2023, announced on September 27, 2022, will decrease slightly. Most Part B beneficiaries pay $164.90 in 2023, $5.20 less than $170.10 in 2022. This is important because Medicare premiums are typically deducted from Social Security benefits, which would have undermined COLA ‘s impact if these premiums had increased.
Although most people do not pay a premium for Medicare Part A, hospital insurance, they are subject to deductibles and coinsurance payments. The 2023 Part A deductible is $1,600, $44 more than in 2022. There are also increases in Part A coinsurance. $400 per day, $11 more than the 2022 rate. Medicare costs also apply.
Extra Social Security changes for 2023
In addition to the 8.7% benefit increase for 2023, starting in January 2023, Social Security beneficiaries will undergo the following additional changes:
- Maximum income subject to Social Security tax will increase to $160,200 from $147,000 in 2022;
- The maximum income beneficiaries working below full retirement age can earn before benefit reduction is $21,240 from $19,560 in 2022;
- The monthly maximum. The Social Security benefit for an employee who retires by full retirement age in 2023 will increase from $3,345 to $3,627;
- Median Social Security benefit paid in 2023 increases to $1,827 from $1,681 last year;
- Employees with disabilities will also see an increase from $1,364 per month to $1,483;
- It now costs $1,640 to get a single Social Security loan, up $130 from 2022.
Things that will stay the same
- Social security contribution rates remain the same in 2023: 6.2% for employees and 12.4% for the self-employed;
- Individuals with incomes of more than $200,000 ($250,000 for couples applying together) pay the same 0.9% additional Medicare tax.
Conclusion
Social Insurance COLA was never designed to offer beneficiaries a raise. It was (and is) projected to partially offset the year-over-year increase in the cost of goods and services. Because it doesn’t take into account future rate increases or cost increases in related government programs like Medicare, it’s not a perfect system.
The increase in monthly benefits is welcomed by millions of beneficiaries. Without the increase, inflation works like a wage cut. The added bonus this year is the reduction in Medicare Part B premiums. Combining this with COLA will do even more to help those on SS and SSI maintain their standard of living.