In mid-October, retirees are going to get some important news from the Social Security Administration. It is news many people have been waiting for, and it will have a profound impact on the finances of seniors across the country.
The Social Security cost-of-living adjustment will soon be announced
So, what's the big news? It's the amount of the cost-of-living adjustment (COLA) retirees can expect to receive in 2023. It reveals how much seniors' Social Security checks will increase next year.
COLAs were built into the Social Security benefits program for an important reason: The price of goods and services goes up over time. If retirement checks were fixed at a set amount and never increased, retirees would dramatically lose buying power over time. Their benefits would be worth very little in real terms by the end of their retirements.
To avoid this, the program was designed for periodic benefits increases to occur. In most, but not all, years, this means seniors see their checks get bigger. And they will soon find out by how much. The COLA announcement is expected sometime around Oct. 13, although the exact date has yet to be determined.
Why is the COLA going to be announced in October?
If you're wondering why this big announcement is coming in October when the COLA will take effect in January, there's a simple answer: That's when the Social Security Administration first finds out how big the benefits increase is going to be.
See, the formula used to calculate COLAs involves comparing the cost of goods and services as measured by a consumer price index. The pricing index used is the consumer price index for urban wage earners and clerical workers (CPI-W). This index measures how much a “basket” of goods and services, including housing, healthcare, and transportation, costs.
The CPI-W numbers are compared from one year to the next, and the COLA is based on the percentage increase. But the Social Security Administration doesn't consider index numbers for the full year — just for the third quarter of the year before the raise is announced.
So, the CPI-W numbers from July, August, and September are the relevant ones used to calculate how much prices have gone up on average. Since the September data will come out at the beginning of October, the Social Security Administration will be able to calculate the 2023 benefits increase and will announce it around the middle of the month.
Retirees shouldn't get too excited, though. Remember, although this is often referred to as a “raise,” it's really just meant to ensure your checks don't buy less than before. It is not meant to enable you to buy more than you did in the past — just to pay for the things you always purchased that have now become more expensive.
So, watch for the COLA announcement in the coming weeks so you can plan for how much extra money will come in — but be sure to also keep a close eye on your budget for 2023 so you don't spend too much during this time of high inflation.
The $18,984 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $18,984 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.