Can Social Security Really Get You a 10% Increase in 2023?

Inflation has become a huge threat to consumers, and retirees living on fixed incomes are most vulnerable to rising prices. When you have to pay more for everything, your budget can be pushed to the limit or even further, leaving you with impossible choices.

However, for those receiving Social Security, there is some comfort in the program’s annual inflation adjustments. After rising 5.9% at the start of this year, even higher inflation rates so far in 2022 have made it almost certain that the cost of living (COLA) adjustment starting in early 2023 will be much higher . There would indeed be another 10% boost ahead, although it would take some renewed inflationary pressures to get there.

A Social Security card with George Washington's image on the dollar bill and two people talking in the foreground.

Image source: Getty Images.

Prices rose in the first half of 2022

To determine annual COLAs, the Social Security Administration looks to an inflation measure, the CPI-W. That measure saw a massive acceleration in its advance in the first half of 2022, rising 6.8% between December 2021 and June 2022. If inflation had stayed at that pace, a double-digit Social Security COLA would have seemed almost sure was .

However, the key months for measuring Social Security COLA are July, August, and September. The July inflation report showed a slight 0.1% decline in the CPI-W, bringing the year-over-year increase to 9.1%. The relief came largely from falling gasoline prices, other energy-related costs, and other areas where huge advances had been reversed, including airline tickets and used cars.

How COLA Could Surpass 10%

The July numbers are just one piece of the puzzle as to how much extra money Social Security recipients will get in January. The SSA will average the figures for July, August and September and compare this with the average of the same months last year. That number as of 2021 is 268,421, so the July reading of 292,219 represents an 8.9% increase.

If inflation remains calm and the CPI-W remains stable in August and September, that figure of 8.9% will turn out to be the COLA that will take effect in early 2023. Even that number would be the biggest boost to Social Security recipients in decades.

It would take major inflation spikes for COLA to reach the 10% threshold. It would take an average of 295,263 from July to September to reach a COLA of 10%, and that in turn would require month-over-month increases of more than 1% in both August and September.

More likely, the CPI will maintain more modest gains. That would likely yield a 9% or more increase in next year’s monthly Social Security benefits without hitting double-digit percentage growth.

Are COLAs Late?

The problem with how the SSA makes adjustments to reflect a higher cost of living is that they only come retroactively. Social Security recipients have had to endure the current period of higher costs straight away, without the benefit of an immediate increase in their monthly checks. It’s not until January that those people will get the bigger checks that many really need right now.

In addition, there is controversy over whether the COLA really reflects the costs that most of those old enough to collect Social Security actually have to pay. The CPI-W is an index for employees with a different need for goods and services than for retirees who no longer have work-related costs. For example, rising gasoline prices have a greater impact on seniors who spend a lot of time traveling than on those who have short work-related commutes.

In the next few months we will know how big the Social Security COLA for 2023 will be. It may fall below 10%, but seniors will be happy with every extra cent they get to combat the increased costs they’ve been dealing with all year.

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