In 2023, typical retirees could see a lot more money in the form of Social Security checks that are much larger than what they receive today.
They could get more than $150 extra per month, and should be aware of what this means for their budget.
Why benefits could be much bigger in 2023
Americans getting Social Security checks can expect them to be much bigger next year because of something called a cost-of-living adjustment, or COLA.
As the name suggests, a COLA raises the benefit seniors get based on inflation. Prices generally go up over time, but most seniors don’t get bigger salaries. So COLAs are built into Social Security to help retirees fight inflation.
The formula to calculate the COLA involves comparing prices from one year to the next. Basically, it sees how the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has changed from the year prior. The CPI-W data from the third quarter of this year will be compared to the 2021 third quarter to arrive at the COLA for benefits in 2023.
Since the third quarter includes July, August, and September, we don’t yet have the relevant data. But the most-recent inflation numbers for June (using a different price index) showed that Americans are paying 9.1% more for goods and services versus June of 2021.
If inflation persists at around this level, seniors who earn the average $1,661 benefit could see a COLA of around $151 per month next year.
That $151 a month might not go very far
A big COLA might seem great, but there are a few caveats.
First, just because typical retirees might get a $151 COLA next year does not mean they will keep all that extra cash. Medicare premiums are probably going to go up as well, and these premiums are usually taken directly from Social Security benefits.
The bigger issue, though, is that costs are going way up along with the checks retirees receive. If you get an extra 9.1% but your costs are up 9.1%, too, you aren’t any better off.
And since the COLA is calculated based on third-quarter data from the prior year and prices have been increasing really rapidly, costs could keep going up, and the raise seniors get might still be insufficient to cover them. So retirees might be getting a big raise, but they definitely shouldn’t get excited about all this “extra” cash.
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