Here’s Where Social Security’s 2023 COLA Ranks, Historically

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For the more than 65 million Social Security beneficiaries – especially the 48.1 million retired workers – the most important day of the year is only two weeks away. On October 13, 2022, at 8:30 a.m. ET, the Bureau of Labor Statistics (BLS) will release September inflation data, the final piece of the puzzle needed to calculate Social Security’s cost of living (COLA) adjustment for 2023. .

Since the vast majority of seniors who receive Social Security depend on this income to make ends meet during retirement, it is important to know how much they will be paid monthly.

Image source: Getty Images.

How is the Social Security Cost of Living Adjustment (COLA) Adjustment Determined?

The easiest way to think of the COLA is the “increase” passed in most years to account for the rising price of goods and services (more commonly known as inflation). To ensure that our country’s retired workers can maintain the same cost of living from year to year, social security controls should ideally keep pace with inflation. The COLA is the payout boost that does just that.

Note, however, that I put “increase” in quotes. Unlike a “raise” that an employer would offer to help an employee stay ahead of inflation, the COLA is strictly designed to keep pace with inflation. It’s just an “increase” in nominal dollar terms.

Calculating the Social Security cost of living adjustment is quite simple. The average third quarter (July-September) reading of the consumer price index for urban wage earners and white-collar workers (CPI-W) for the current year is compared with the average third quarter reading of the CPI-W in the previous year. If the average CPI-W value increases from one year to the next, inflation has occurred and beneficiaries are queuing up for a higher payout in the coming year. The amount of the “increase” corresponds to the annualized percentage increase in the average CPI-W value for the third quarter, rounded to the nearest tenth of a percent.

Once September’s inflation data is reported by the BLS on October 13, we’ll have the last data point needed to officially calculate COLA for 2023.

This is where the 2023 COLA scores historically

Based on July and August CPI-W measurements, the cost of living adjustment for 2023 is at a rate of 8.8%. However, policy analyst Mary Johnson of the impartial senior advocacy group The Senior Citizens League (TSCL) estimates the final COLA figure will hit a historic 8.7%. For the average retired worker, this equates to an increase of about $146 per month from their Social Security check.

An increase of $146 per month for retired workers would be without a doubt the largest nominal dollar increase in the program’s history. But on a percentage basis, Social Security’s 2023 COLA is “historic,” depending on how wide you set the lens.

Since 1975, the Social Security COLA has been linked to the CPI-W and calculated annually. Assuming Johnson’s prediction is correct, the 2023 COLA looks like this in addition to other years:

Year COLA Year COLA Year COLA
1975 8% 1991 3.7% 2007 2.3%
1976 6.4% 1992 3% 2008 5.8%
1977 5.9% 1993 2.6% 2009 0%
1978 6.5% 1994 2.8% 2010 0%
1979 9.9% 1995 2.6% 2011 3.6%
1980 14.3% 1996 2.9% 2012 1.7%
1981 11.2% 1997 2.1% 2013 1.5%
1982 7.4% 1998 1.3% 2014 1.7%
1983 3.5% 1999 2.5% 2015 0%
1984 3.5% 2000 3.5% 2016 0.3%
1985 3.1% 2001 2.6% 2017 2%
1986 1.3% 2002 1.4% 2018 2.8%
1987 4.2% 2003 2.1% 2019 1.6%
1988 4% 2004 2.7% 2020 1.3%
1989 4.7% 2005 4.1% 2021 5.9%
1990 5.4% 2006 3.3% 2022 8.7% (estimated)

Data source: Social Security Administration, except for 2022, which is an estimate from The Senior Citizens League.

As you can see, a COLA of 8.7% would be the fourth largest “increase” in modern times (ie, since the CPI-W became the program’s inflationary measure). It would also be the largest percentage increase in 41 years.

But this doesn’t tell the full story. Before 1975, cost-of-living adjustments were arbitrarily passed by special conventions. In the 35 years between the first payout (Jan. 1, 1940) and the approval of the CPI-W as the program’s inflationary chain, 11 COLAs were passed by Congress:

  1. October 1950: 77% COLA
  2. October 1952: 12.5%
  3. October 1954: 13%
  4. February 1959: 7%
  5. February 1965: 7%
  6. March 1968: 13%
  7. February 1970: 15%
  8. February 1971: 10%
  9. October 1972: 20%
  10. Apr 1974: 7%
  11. July 1974: 11%

In all, that’s 59 cost-of-living adjustments (including the coming year) since the first benefit was paid in 1940. If beneficiaries are on track for a COLA of 8.7% by 2023, it would be the 12th largest in history. that goes back to the beginning.

A visibly concerned couple checks their bills and finances as they sit at the kitchen table.

Image source: Getty Images.

Seniors stay at the short end

On the surface, the 12th largest cost-of-living adjustment may leave some beneficiaries wide-eyed with joy. Unfortunately, there’s more to the program’s COLA than meets the eye.

For example, the only reason next year’s benefit hikes are expected to be so large is that US inflation hit a more than four-decade high of 9.1% in June. This suggests that beneficiaries will kiss most or all of their payout boost goodbye as they cover the increased costs of lodging, medical care, food and other expenses.

What is even more concerning is the ongoing loss of purchasing power seniors have faced since the turn of the century. A May report from TSCL notes that the purchasing power of Social Security income has fallen 40% since 2000. In other words, what used to be $100 in Social Security income can now buy only $60 of those same goods and services 22 years later.

The reason for this continued decline in purchasing power can be traced to the CPI-W. As the full name suggests, the CPI-W tracks the spending pattern of “urban wage earners and white-collar workers.”

City and administrative staff are usually not seniors and spend their money very differently than retired employees. The end result is that the CPI-W gives extra weight to insignificant costs, such as clothing and education, while underweighting the most important expenses for seniors, such as shelter and medical care. Over a period of 22 years, this has led to a 40% loss of purchasing power on social security income.

However historically high the Social Security cost-of-living adjustment may be in 2023 or beyond, it simply won’t be enough to offset this ongoing loss of purchasing power.


The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

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