The Social Security Administration has announced a historic increase in benefits for 2023, with Social Security beneficiaries set to receive an 8.7% hike in their payments. Amid record-high inflation rates, this boost represents the largest increase in Social Security benefits in the last 40 years.
The announcement was made on October 13, 2022, and is set to take effect in January 2023, resulting in an average monthly increase of more than $140 for beneficiaries. This marks the fourth largest increase since the introduction of automatic inflation adjustments in 1975, demonstrating the commitment of the Social Security Administration to supporting those in need and providing a safety net for retirees and disabled individuals.
The Social Security Administration has announced that Social Security beneficiaries will receive a cost-of-living adjustment (COLA) of 8.7% in 2023. This increase, the highest in the last 40 years and the fourth largest since automatic inflation adjustments were introduced in 1975, will result in an average benefit increase of $146 per month, bringing the average monthly check to $1,827 starting in January 2023.
This follows last year’s 5.9% COLA increase, which was the largest bump since 1982, and marks a departure from the average 1.7% annual COLA increase seen from 2010 to 2020.
What is a Cost-of-Living Adjustment (COLA)?
Cost-of-Living Adjustment, or COLA, is a crucial mechanism that helps Social Security and Supplemental Security Income (SSI) beneficiaries keep pace with the rising cost of living. COLA is an annual adjustment made to these benefits to account for inflation, which is the price increase over time.
The adjustment is calculated based on the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for a specific period. By ensuring that benefits keep up with the cost of living, COLA helps seniors and those with disabilities maintain their standard of living.
The Consumer Price Index (CPI) is a benchmark for determining economic inflation. It reflects the average prices of a basket of goods and services consumers typically purchase. The 8.7% cost-of-living adjustment (COLA) for 2023, announced by the Social Security Administration, is based on the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
This means that someone who received $10,000 in Social Security benefits in 2022 will see their annual benefit increase to $10,870 in 2023.
Additional Social Security Changes for 2023
- 8.7% increase to Social Security benefits in 2023
- Average monthly benefits will increase by $146 to $1,827
- Cost-of-Living Adjustment (COLA) to counter the effects of inflation
- COLA equal to the percentage increase in the Consumer Price Index
- Maximum earnings subject to Social Security Tax will increase to $160,200
- Maximum earnings for working recipients before a reduction in benefits will increase to $21,240
- Maximum monthly Social Security benefit for a worker retiring at full retirement age will increase to $3,627
- Average Social Security benefit paid in 2023 increases to $1,827
- Disabled workers will see a rise from $1,364 per month to $1,483
- It takes $1,640 to earn a single Social Security credit, up $130 from 2022
What is Cost-of-Living?
Cost of living refers to the expenses needed to cover necessities such as housing, food, taxes, and healthcare in a specific place and time. The cost of living is used to compare the affordability of living in different cities.
The cost of living is linked to salary or wages. For example, in a city with high living expenses, such as New York, wages must also be high to ensure that residents can afford to live there.
Living Expense Index
The cost of living is crucial to determining the standard of living in any metropolitan area. Various indices have been developed to compare the cost of living between cities to measure the expenses incurred in daily life.
The Living Expense Index is one such index that calculates the expenses related to sustenance in a large city and compares it to other metropolitan areas. The index considers various factors such as housing, groceries, utilities, transportation, healthcare, and even leisure activities like haircuts and movie tickets to reach a benchmark that the workforce can use as a reference.
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In 2018, a study by the Council for Community and Economic Research found that San Diego was the most expensive city, as opposed to popular belief that New York City would hold the top spot. The council’s Cost of Living Index measured prices in 269 urban areas, providing a comprehensive analysis of the cost of living in different cities.
Social Security Cost-of-Living Adjustment Increase 2023
|Categories In Tax Rate||Year 2022||Year 2023|
|Maximum Taxable Income||Not Available||Not Available|
|Medicare||No Limit||No Limit|
|Social Security Only For OASDI||$147,000 USD||$160,200 USD|
|Retirement Income Exam With Exempted Amounts||Not Available||Not Available|
|Under Full Retirement Plan||$19,560 USD Per Year||$21,240 USD Per Year|
|Reaching Retirement Age This Year||$51,960 USD Per Year||$56,520 USD Per Year|
|Social Security Disability Thresholds||Not Available||Not Available|
|Non-Blind Candidates||$ 1,350 USD Per Month||$1,470 USD Per Month|
|Blind Candidates||$ 2,260 USD Per Month||$ 2,460 USD Per Month|
|Trial Work Period Candidates||$ 970 USD Per Month||$ 1,050 USD Per Month|
|Full Social Security Benefit: At The Retirement Age||Not Available||Not Available|
|Supplemental Security Income Federal Payment Mode Standard||Not Available||Not Available|
|Independent||$ 841 USD Per Month||$ 914 USD Per Month|
|Couple||$ 1,261 USD Per Month||$ 1,371 USD Per Month|
|Supplemental Security Income Limits of Resource||Not Available||Not Available|
|Independent||$ 2,000 USD Per Month||$ 2,000 USD Per Month|
|Couple||$ 3,000 USD Per Month||$ 3,000 USD Per Month|
|Supplemental Security Income Exclusion For Students||Not Available||Not Available|
|Monthly Limit||$ 2,040 USD||$ 2,220 USD|
|Yearly Limit||$ 8,230 USD||$ 8,950 USD|
|Average Monthly Social Security Benefits To Be Paid In Jan 2023||Before COLA 8.7% Benefits||After COLA 8.7% Benefits|
|Retired Applicants||$ 1.681 USD||$ 1,827 USD|
|Aged Couple Both Having Benefits||$ 2,734 USD||$ 2,972 USD|
|Widowed Mother of Two||$ 3,238 USD||$ 3,520 USD|
|Aged Widow Living Alone||$ 1,567 USD||$ 1,704 USD|
|Disabled Worker, Partner with One or More Children||$ 2,407 USD||$ 2,616 USD|
|All Disabled Applicants||$ 1,364 USD||$ 1,483 USD|