What’s the Lowest Your Social Security Increase Will Likely Be?

You might have heard a lot recently about the huge Social Security cost-of-living adjustment (COLA) that's on the way. Some are predicting the increase could be nearly 11%.

However, it's usually a good idea to hope for the best while preparing for the worst. There are some reasons you shouldn't count on a COLA of close to 11%. But what's the lowest your Social Security increase will likely be?

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How the COLA is calculated

To answer the question, it's important to first understand how the COLA is calculated. Since 1975, these annual increases have been based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W is one of several metrics used by the Department of Labor's Bureau of Labor Statistics (BLS) to track inflation.

In June, the BLS reported that the CPI-W increased 9.8% over the previous 12 months. So does this mean that the Social Security COLA for 2023 will at least be at that level? Nope.

Social Security only uses the CPI-W figures from the third quarter of the current and previous years. The increase between the two numbers determines the COLA for the following year. If there's no increase, there's no COLA.

For example, in the third quarter of 2021, the CPI-W averaged 268.421. In Q3 2020, the average was 253.412. The difference between the numbers was 5.9%. And that increase was used to set the COLA for 2022.

Best guesses

Since the third quarter of 2022 hasn't ended yet, there's no way to know for sure what the CPI-W average for the quarter and the COLA for 2023 will be. But some experts have made educated guesses.

Mary Johnson, Social Security and Medicare policy analyst with The Senior Citizens League, predicts that the COLA for next year will be at least 9.8% even if inflation declines somewhat from the June level. Johnson thinks that the COLA could be as high as 11.4%.

But that range is higher than the projections from the Committee for a Responsible Federal Budget (CRFB). The CRFB is a nonpartisan, nonprofit organization that focuses on issues affecting U.S. fiscal policy. When you see reports about the Social Security COLA for 2023 potentially being nearly 11%, they're probably using the CRFB's estimate of 10.8%.

That number was the upper end of the CRFB's range. The low end of the organization's projected range was 7.3%. It's possible that this could be the lowest Social Security increase to expect.

What if we assume that inflation in Q3 will remain at the same level as it was in Q2? The CPI-W in the third quarter of 2021 was 268.421. If the inflation metric for the third quarter of 2022 remains unchanged from Q2, it will be 288.38. That translates to a 2023 COLA of 7.4%.

On the other hand, we are seeing some signs that inflation could decline in Q3: Fuel prices have fallen somewhat in recent weeks, and the housing market appears to be cooling down. Perhaps the COLA could be closer to 7% if these trends continue throughout the quarter.

Probably not enough

Social Security recipients probably wouldn't go wrong by preparing for a COLA in the ballpark of 7%. However, the actual increase could certainly be higher than that — maybe close to 11%, as some experts predict.

Unfortunately, the CPI-W doesn't include Medicare premiums and out-of-pocket healthcare costs. Medicare Part B premiums soared 14.5% in 2022. Regardless of what the 2023 COLA is, though, it probably won't be enough to keep pace with the higher cost of living experienced by many seniors.

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