Inflation will without a doubt impact how much the COLA will increase in 2023, but how much will the COLA increase for Social Security be? When will the 2023 COLA be announced?
Inflation is possibly one of the largest influences when it comes to Social Security benefits and the COLA each year.
Experts have been weighing in heavily on what they think will happen with Social Security.
This year will likely see more changes than any year before due to the massive impacts of inflation.
The most important tool for determining the COLA 2023 increase is the Consumer Price Index
According to the ASPPA, the Consumer Price Index, or CPI-U, is the most commonly used tool for measuring inflation.
This is because its data applies to 88% of the U.S. population.
The tool is used both in policy making as well as paying interest of Treasury Inflation Protected Securities.
The other tools for measurement include the CPI-W, C-CPU-U, and CPI-E.
The CPI-W is what’s used to determine the COLA because it applies to workers.
When tracking all of the data from January 2001 to June 2022, the inflation is almost the same for every measurement tool.
These tools are the most important because they determine exactly how much people will receive for Social Security retirement.
They’re used to measure the cost of living adjustment, or COLA.
While the CPI-U is used for many policies, the CPI-W is what is used to determine the COLA.
Unfortunately, the CPI-W being used creates more volatility.
This happens because when using the tools to measure inflation, the CPI-W appears to over-exaggerate the high and low points during periods of inflation.
What does this mean for the COLA in 2023?
A new estimate was recently released from the Senior Citizens League, setting the 2023 COLA increase at 8.7%, according to CNBC.
For 2022, the COLA increase was 5.9%, one of the highest increases in recent years.
If the increase surpasses that this year, it will be the highest in 40 years.
It’s important to remember that the 8.7% is still only an estimate, it’s not a final number.
There are three factors that can go into determining the COLA increase between now and when it’s announced.
The first is that September’s inflation data will be used to determine the third quarter inflation rate for the CPI-W.
While the data for July and August are final, there could be changes in September.
Next is interest rate hikes.
The Federal Reserve continues to increase interest rates to help curb the inflation rate.
The hikes being implemented this month may change the rate of inflation, which will then factor into the COLA increase.
Finally, Medicare Part B premiums play a part in how much Americans will see in their Social Security checks next year.
Premiums are deducted directly from Social Security checks, leaving the rest to the beneficiary.
The premium for 2022 is $170.10, and it could increase.
In June an annual report from the Medicare trustees stated they believed the rate would stay the same for 2023.
The official premium for the year 2023 will be announced in November.
When will Americans find out when the Social Security Administration shares the increase?
As Americans anxiously await the 2023 COLA increase, many are wondering when they will officially find out.
Inflation has increased at an incredibly rapid pace for 2022, with gas costs increasing as much as 44%.
Some retirees depend entirely on Social Security, so the COLA announcement is the most important one of the year for them.
The announcement is usually made sometime in October.
For 2022, the Consumer Price Index data for the month of Sept. was released on October 13.
That same day the COLA increase was announced.
This means for 2023, the announcement can be expected close to or on October 13, 2022.
While some experts believe the increase will be around 8.7%, others think it could get as high as 10.5%.
Should the increase go over 5.9%, it’ll be the highest since the year 1981, according to Market Watch.
The boost would be worth around $144 and make the average monthly payment around $1,656.
An increase doesn’t guarantee buying power for seniors
While a massive increase would be welcomed, it’s also unlikely it will solve the issue of buying power for seniors.
This is because the COLA increase last year was only 5.9%, but inflation surpassed that amount halfway through the year.
This took away from seniors buying power, keeping them unable to buy necessities as costs skyrocketed.
The Senior Citizens League was able to put it more simply.
Those collecting Social Security checks are putting up with 2022 inflation rates with 2021 inflation adjustments, according to USA Today.
Had prices stayed the same or close to what they were in 2021, that COLA increase would have sufficed.
This means if the cost of living continues to increase in 2023, whatever adjustment that was given in 2022 isn’t going to offset those costs.
It will have offset the costs of 2022.
Inflation rates for 2022 through the month of August have made it so Social Security recipients are out of pocket around $418 on average.
70 million Americans are impacted by this adjustment, and it isn’t just retired Americans.
Those collecting disability and supplemental security income are impacted as well.
Oct. 13 can’t come soon enough for seniors who are anxiously awaiting the announcement.
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Samantha edits our personal finance and consumer news section. Have a question or lead? Send it to [email protected].