Baseball great Yogi Berra once said, “A nickel ain't worth a dime anymore.” It's a funny — but true — statement. The value of money decreases over time due to the impact of inflation.
Most Social Security recipients have experienced this personally. They've felt the sting of higher prices for nearly everything this year. The good news, though, is that a huge Social Security increase is on the way. Here are three things every retiree should know about this coming pay raise.
1. When the increase will be announced
The Social Security Administration (SSA) hasn't officially given a specific date for when the cost-of-living adjustment (COLA) for 2023 will be announced. All the agency has said so far is, “We will announce the next COLA in October 2022.”
However, it's likely that the Social Security increase will be announced on or soon after Oct. 13. That's exactly one year after SSA announced the last COLA on Oct. 13, 2021.
There's a reason that specific day in October is probable. SSA uses inflation data supplied by the Bureau of Labor Statistics (BLS) to calculate the annual COLA. Guess when BLS announced that data. If you answered Oct. 13, 2022, pat yourself on the back.
2. How the COLA is calculated
That leads us to the next important thing to know: how SSA calculates the annual COLA. First, the agency bases the Social Security increase on how much inflation has risen from the previous year.
The inflation number you'll hear most often on the news uses the Consumer Price Index for All Urban Consumers (CPI-U). Your Social Security COLA, though, is based on another more specialized inflation metric called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
But SSA doesn't use the average CPI-W for the full year. Instead, it determines the difference between the average CPI-W for the third quarter of the current year compared to the average for Q3 in the previous year. If there's an increase, that's what the COLA will be for the next year. If there's no increase, there's no COLA.
This explains, by the way, why Oct. 13 is such a magic date. BLS reports inflation data for September (the last month of Q3) then. This data includes the CPI-W. SSA can't calculate the COLA until the September number is available.
3. How big the increase is likely to be
Earlier in 2022, the Committee for a Responsible Federal Budget projected that the Social Security increase could be as high as 11.4%. The nonprofit organization later lowered its top estimate to 10.8%. More recently, the Senior Citizens League predicted that the next COLA could be as much as 9.6%.
Those estimates, however, didn't reflect the latest inflation data. BLS revealed the August CPI-W last week. And the metric declined slightly from the previous month. Based on this recent data, Social Security benefits will probably rise less than retirees expected earlier this year.
If the CPI-W number for September is the same as the August level, the Social Security increase for 2023 will be slightly over 8.7%. But if inflation continues to slide at the same rate that it did last month, the COLA could be a little under 8.7%. Either way, it would be the highest increase in over 40 years.
It's possible that your Social Security increase could be higher or lower than these estimates, though. We won't know for sure until SSA's COLA announcement in October. There's another relevant Yogi Berra quote to keep in mind: “It ain't over till it's over.”
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