Social Security recipients are going to get a cost of living adjustment (COLA) in 2023. COLAs are designed to ensure that benefits keep pace with inflation, and they're commonly referred to as "raises" for seniors.
High inflation this year ensures that retirees will see considerably more money next year. But what's the biggest possible check they could receive, and what will it be for the vast majority of recipients?
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What the highest benefit in 2023 might be
In 2022, the maximum monthly Social Security check is $4,194 per month. Few seniors get this much. But if you maxed out the earnings counted in your benefits formula and you waited until 70 to claim them, you'd be one of them.
The COLA formula will determine exactly how much higher that check will be in 2023. And the COLA will not be announced until some time in October.
It's based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The Social Security Administration uses CPI-W data from the third quarter of this year and 2021 to compare annual changes in prices. And we have some preliminary data already. As of July, the CPI-W was up 9.1% on a year-over-year basis.
This means if inflation numbers for July, August, and September are similar, seniors could see a 9.1% COLA, the biggest in 40 years. In that case, the current maximum benefit of $4,194 would go up to around $4,576. But whatever you now get from Social Security each month, all you have to do is multiply it by 1.091 to see what your new benefit will be.
It's possible inflation numbers will change over the relevant quarter. At one time, the nonpartisan Senior Citizens League projected a 10.1% increase during that quarter. If this higher prediction pans out, the max benefit would go up to around $4,618.
Is this extra money good news?
On the surface, it might seem great that benefits are increasing so much. But COLAs are calculated based on inflation. So the 9.1% benefits increase means the prices of goods and services are up about that much so far this year.
The big COLA will be eaten up by these extra costs. And most people don't have Social Security benefits anywhere near the max $4,194, so a 9.1% raise won't increase their benefits by the same big dollar amount. With an average Social Security benefit of just $1,661, a 10.1% raise would mean only about $168 extra per month, much of which will be eaten up by rising Medicare premiums and other elevated costs.
And seniors with income from savings and investment accounts will also see the buying power of these other funds fall since there are no COLAs on them. So more than ever, retirees need to budget their extra Social Security money wisely.
