Based on the latest Consumer Price Index (CPI) data for June and the corresponding rise in inflation, the 2023 Social Security cost-of-living adjustment (COLA) could be the highest in decades.
While the final Social Security COLA won’t be known for several months, estimates from The Senior Citizens League (TSCL) based on the new CPI-W data through June show that the COLA for 2023 could be 10.5%. This also depends on whether inflation runs “hot” or “cold,” the organization notes:
- if inflation runs “hot” or higher than the recent average, the COLA could be even higher, at 11.4%.
- if inflation runs “cold” or lower than the recent average, the COLA could be 9.8%.
As such, a 10.5% COLA would increase the average retiree benefit of $1,668 by $175.10, rounded as done by the Social Security Administration, TSCL further notes.
Based on the April CPI data released in May, TSCL estimated that the annual COLA for 2023 could be around 8.6%—which would be the highest since 1981. The final COLA for 2022 was 5.9%, which was a 40-year high.
More Accurate Measure?
TSCL notes that its new Seniors Priority survey based on more than 2,300 respondents collected from May through June found that 71% rank providing a cost-of-living adjustment that better protects Social Security benefits from the inflation experienced by older adults as a top priority for Congress.
In fact, legislation has been introduced by Rep. John Larson (D-CT), chairman of the House Ways and Means Social Security Subcommittee, that would adjust the COLA estimates by basing the annual adjustment on the consumer price index for the elderly (CPI-E), which measures the cost increases experienced specifically by seniors.
“A high COLA will be eagerly anticipated to address an ongoing shortfall in benefits that Social Security beneficiaries are experiencing in 2022 because inflation is higher than their 5.9% COLA,” notes Mary Johnson, a Social Security and Medicare policy analyst for TSCL who conducts the estimates.
Inadvertent Consequences
Yet, while a high COLA is better than no COLA at all, there are consequences that boosted Social Security income can have that affects overall financial security, the TSCL policy analyst observes.
For instance, even though it may be the highest COLA in 40 years, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)—which the Social Security COLA is based off of—measures inflation experienced by younger working adults, but it does not include the spending patterns of households with retirees aged 62 and older, nor does it account for increases in the Medicare Part B premiums. In 2022, Part B increased 14.5%, one of the highest jumps in program history. The Part B premium is automatically deducted from Social Security checks, and in 2022 beneficiaries are still smarting from this, Johnson notes.
COLAs also affect income. As such, higher income often leads to cuts in income related benefits for low-income people and higher taxes for those with incomes above $25,000 for individuals and $32,000 for married couples. The organization notes that many thousands of retirees who have not previously paid taxes on their benefits in the past may discover they must start doing so in 2023.
Finally, higher incomes can also lead to a loss of income adjusted Medicare health and prescription drug benefits for low-income beneficiaries. Consequently, higher income individuals can wind up paying higher Medicare Part B and Part D benefits.
It’s also worth remembering that the SSA’s annual COLA announcement for the upcoming year—which typically is released in October—provides an early precursor of what can be expected for COLAs on retirement plan contribution and benefit limits.
