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Amid record inflation, Social Security recipients will see an 8.7% increase in their benefits in 2023, the biggest increase in 40 years.
The Social Security Administration announced the change Thursday. This will mean an increase in benefits of more than $140 per month on average starting in January.
The average Social Security retiree benefit will increase by $146 per month, to $1,827 in 2023, from $1,681 in 2022.
The Senior Citizens League, a non-partisan group of senior citizens, estimated last month that the COLA could reach 8.7% next year.
The confirmed increase of 8.7% in benefits exceeds 5.9% increase in beneficiaries in 2022which was at the time the highest for four decades.
The last time the cost of living adjustment was higher was in 1981, when the increase was 11.2%.
Next year’s record increase comes as beneficiaries have struggled to cope with rising prices this year.
“COLAs are really about people who are treading water; they’re not benefit increases,” said Dan Adcock, director of government relations and policy at the National Committee for the Preservation of Social Security and Insurance. sickness.
“They’re trying more to provide inflation protection so people can maintain their standard of living,” Adcock said.
How much can your social security check be
Beneficiaries can expect to see the 2023 COLA in their benefit checks starting in January.
But starting in December, you may be able to see online notices from the SSA showing the amount of your checks next year.
Two factors — Medicare Part B premiums and taxes — can influence the amount of your benefit checks.
The standard Medicare Part B premium will be $5.20 less next year – at $164.90, down from $170.10. These payments are often deducted directly from Social Security benefit checks.
“This means beneficiaries will be able to keep most or all of their COLA increase,” said Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League, told CNBC.com this week.
This can vary if you have money withheld from your monthly checks for taxes.
To estimate how much money you might see next year, take your net Social Security benefit and add your health insurance premium and multiply it by the 2023 COLA.
“That will give you a good idea of what your raise will be,” said Joe Elsasser, a certified financial planner based in Omaha, Nebraska and founder and president of Covisum, a provider of Social Security claim software.
How COLA is linked to inflation
The COLA applies to approximately 70 million beneficiaries of Social Security and Supplementary Security Income.
The change is based on the consumer price index for urban wage and office workers, or CPI-W.
The SSA calculates the annual COLA by measuring the change in CPI-W between the third quarter of the previous year and the third quarter of the current year.
Benefits do not necessarily increase every year. While there was a record 5.8% increase in 2009the next two years saw increases of 0%.
“For older people, because they spend so much on health care, those were tough years,” Adcock said.
A similar pattern can occur if the economy goes into a recession, according to Johnson.
What the COLA means if you haven’t applied for benefits yet
If you decide to apply for social security benefits, you will have access to the COLA record.
But you’ll also have access to it if you wait to start your benefit checks at a later date, according to Elsasser.
If you are 62 now and do not apply, your benefit is adjusted by each COLA until you do.
The COLA amount should really not influence the claim.
CFP and President of Covisum
In addition, deferring benefits may increase the amount of your monthly checks. Experts generally recommend that most people wait as long as possible, until age 70, as benefits increase by 8% per year from full retirement age, usually 66 or 67. , up to age 70. Whether this strategy is ideal may vary depending on other factors, such as your personal health and marital status.
“The COLA amount really shouldn’t influence claims,” Elsasser said. “It doesn’t hurt or help you to the extent that you claim, because you’re going to get it anyway.”
How a Record Increase May Affect Social Security Funds
Social Security trust funds can pay full benefits through 2035, the Social Security Board said in June.
By then, the program will be able to pay 80% of benefits, the council projects.
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The historically high COLA in 2023 could accelerate the depletion of trust funds to at least a calendar year earlier, according to the Committee for a Responsible Federal Budget.
Higher wages may induce workers to pay more payroll taxes into the program, which may help offset this. In 2023, the maximum taxable income will increase to $160,200, up from $147,000 this year.
What might happen to future benefit increases
While 2023 marks a record COLA, recipients should be prepared for future years where the increases are not as high.
If inflation goes down, the size of the COLAs will also go down.
Whether CPI-W is the best measure of annual increases is a matter of debate. Some present the Consumer Price Index for Seniors, or CPI-E, as a better measure of the costs paid by seniors. Several Democratic congressional bills have called for changing the measure used to calculate annual CPI-E increases.