The news for the Social Security cost-of-living adjustment (COLA) for 2023 is out. There will be a significant COLA for recipients in 2023, and it will be the largest boost in four decades. This is good news for retirees and others receiving Social Security benefits, as it means that their benefits will increase next year to keep up with the rising cost of living.
The COLA for 2023 will be a historic 8.7%, according to the Social Security Administration. This will be the largest COLA since the 11.2% boost in benefits that took place in 1982. To put things in perspective, last year Social Security had a 5.9% increase in benefit payments.
Keep reading to learn more about how the COLA is calculated and what it means for you, especially in this period of inflation.
How Is the Social Security COLA Calculated?
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to calculate the COLA for Social Security benefits. The CPI-W measures changes in prices for urban consumers across the United States using eight major categories of spending along with subcategories. When there is a significant measurable increase in the CPI-W from one year to the next, there is typically an increase for Social Security benefits.
According to the Bureau of Labor Statistics, oil and energy prices are one of the most significant drivers of the CPI-W, as well as consumer staples such as food and housing. Medical care costs are also a significant factor in the CPI-W calculation.
What Does the 8.7% COLA for 2023 Mean for You?
An 8.7% COLA increase is great news for retirees who need their income to keep up with the rising cost of living. With inflation on the rise, the cost of living adjustment for 2023 will help retirees maintain their standard of living.
The average monthly benefit amount is currently just below $1,600. So, it may see an increase of about $135 per month next year if this estimated COLA goes into effect. Of course, your actual benefit amount may be different depending on your personal situation. The size of your benefit check depends on how much you paid into Social Security during your working years.
How Much More Is Inflation Expected to Rise?
To be hard, it’s hard for even economists to predict what inflation, let alone interest rates, will look like just 12 months from now.
Given that caveat, inflation is expected to continue to rise in the coming years, which means that we might see future COLAs that would be higher than they have been in recent years. The Social Security Administration is projecting that the COLA for 2024 could see a 0.2% increase and that the COLAs for 2025 and 2026 could continue that trend.
With the cost of living on the rise, it’s crucial to make sure that you are getting the most out of your Social Security benefits. If you are nearing retirement, there are a few things you can do to maximize your benefits and make sure you are getting the most out of the program.
You can start receiving Social Security benefits as early as age 62. However, your benefits will be permanently reduced if you start receiving them before your full retirement age. Full retirement age is determined by your date of birth, and it ranges from 66 to 67. If you wait until after your full retirement age to start receiving benefits, you will receive 100% of your benefit payment each month (as opposed to a reduced benefit with you claiming Social Security before full retirement age).
Planning for Income Security Even with a High Social Security COLA
While this would be a significant increase in benefits, it’s important to remember that Social Security was never intended to be a retiree’s sole source of income. Ideally, retirees should have a mix of income sources, including pensions, 401(k)s, IRAs, and more. Depending on your financial picture and how much predictable monthly income your assets will generate, you may consider financial options that can pay you guaranteed income and that complement the ongoing, reliable payments of Social Security.
Diversifying your retirement income sources is another key way to make sure you are getting the most out of your golden years. This will help ensure that you have enough money to cover your expenses in retirement, even in hard times such as when inflation is on the upswing.
If you are concerned about whether or not your benefits will be enough to cover your costs in retirement, there are a few things you can do to supplement your income. One option is to delay claiming Social Security benefits until you reach full retirement age. This will give you a bigger monthly benefit check.
You can also consider working during retirement (maybe part-time employment) or downsizing to a smaller home to reduce your living expenses. Also, speak with your financial professional about ways to stretch your retirement dollars further and maximize your income with what you might already have. If you need to save more and perhaps work longer, as covered above, that can give you more time to contribute to retirement accounts and let those retirement assets grow.
Some Final Thoughts About the Social Security Benefits 2023 COLA
Social Security COLAs help retirees maintain their lifestyle with a rising cost of living. But it’s also important to remember that Social Security was never meant to be a retiree’s sole source of income. Diversifying your retirement income sources and making smart decisions about when to claim Social Security benefits can help ensure that you have enough money for all of your retirement.
No matter what, it’s important to have a retirement plan that fits your needs and positions you to meet your long-term goals. Planning ahead is important when it comes to money, especially when it comes to something as important as your retirement income.
Are you looking for help with making well-informed decisions about Social Security or planning for your retirement income? On the other hand, perhaps you want a second opinion of your current plan. For convenience’s sake, many experienced and independent financial professionals are available at SafeMoney.com to assist you.
You can get started by visiting our “Find a Financial Professional” section to connect with someone directly. You can request an initial appointment to discuss your situation and explore a potential working relationship. Should you need a personal referral, please call us at 877.476.9723.