Retirees May See a Monster Increase in Social Security Benefits in 2023

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High inflation has become a serious concern for many Americans. In July, the consumer price index (CPI) rose 8.5%, marking the 17th consecutive month in which inflation has surpassed the Federal Reserve’s 2% target. Rising food and energy prices are the main drivers of that trend, and consumers are feeling the impact at supermarkets and gas stations.

Given the gravity of the situation, Social Security retirement benefits are on track to see a monstrous rise next year. Here’s what you need to know.

Image Credit: Getty Images

Next year could bring a major adjustment in the cost of living

Each year, the Social Security Administration evaluates the cost of living, as measured by the Consumer Price Index for Urban Wages and Employees (CPI-W), to determine if a cost of living adjustment (COLA) is needed. In other words, COLAs make sure Social Security benefits keep pace with inflation.

How are COLAs calculated? The CPI-W of the third quarter (July-September) of the current year is compared to the CPI-W of the third quarter of the last year in which a COLA became effective. If there is an increase, an adjustment — equal to the percentage of the increase — is applied to Social Security benefits due in January of the following year.

That means COLA information for 2023 will not be final until October 2022, as CPI-W data for August and September is not yet available. But retirees and future retirees can still examine the underlying trends using data available today to get an idea of ​​the COLA that can be applied to benefits paid out next year.

In July 2022, the CPI-W came in at 292,219, which is 8.9% higher than the CPI-W of 268,421 from the third quarter of 2021. That means Social Security beneficiaries are on track to easily receive a COLA by 2023. of 8.9% visible. above 5.9% COLA in 2022. In fact, it would be the biggest adjustment since the 11.2% COLA in 1981.

Retirees can get an additional $148 per month

In July, retired workers received an average monthly benefit of $1,670.95, according to the Social Security Administration. But that figure would rise to $1,819.66 after a COLA of 8.9%, leaving the average retiree $148.71 each month.

It’s worth noting that any COLAs introduced after you turn 62 (the age at which you qualify for Social Security) will be added to your benefit even if you don’t get benefits until later. In other words, future retirees won’t miss the potentially huge COLA in 2023 if they choose to postpone Social Security until next year. Waiting as long as possible before claiming benefits is still the best way to maximize the monthly payout.

The chart below illustrates that idea. It’s based on a person born in 1960, meaning their full retirement age is 67 years old, and it assumes a full benefit of $1,670. If that person claims benefits at age 62, the monthly payout would drop by 30%. But if that person waited until age 70 to claim benefits, the monthly payout would increase by 24%.

Age eligible for social security

Monthly benefit

62 years old

$1,169

67 years old

$1,670

70 years old

$2,071

Data source: Social Security Administration and calculations by author.

As a final point, the idea of ​​a huge COLA in 2023 sounds great, but retirees may not feel like they got a raise at all. COLAs simply keep benefits in line with inflation, with inflation hitting a 40-year high in June. In that context, it should come as no surprise if 2023 brings the largest COLA of the past 40 years.


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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