Here’s Why Your Social Security Checks Might Not Actually Increase by 8.7% in 2023

The Social Security Administration recently announced an 8.7% cost-of-living adjustment (COLA) for 2023 — the third-largest since 1980. This will add about $147 per month to the average senior’s checks to help them regain some of the buying power they’ve lost this year to inflation. But you could get more or less than this.

Estimating the size of your 2023 checks seems like a simple matter of adding 8.7% to your current Social Security benefit, but it’s more complicated than that. Here’s how the government actually applies the COLA to your benefit — and why your checks may not increase by 8.7%.

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The COLA isn’t directly applied to your monthly checks

The government applies the Social Security COLA to your primary insurance amount (PIA), which isn’t always the same as your monthly benefit. Your PIA is the amount you qualify for based on your work history at your full retirement age (FRA). This is anywhere from 66 to 67 for today’s seniors. If you wait until this age to claim, your PIA and monthly benefit amount could be the same.

But many seniors don’t wait until their FRA to sign up. So the Social Security Administration runs an additional calculation to adjust the PIA up or down for those who claim early or late. People who claim benefits under their FRA get more checks, but each one is smaller. And those who delay benefits past their FRA slowly grow their checks a little at a time until they reach their largest possible checks at 70.

Once you’re receiving benefits, you’ll get a COLA every year, and the government has to rerun its calculations to see how much you’re entitled to for the next year. It goes like this:

It adds the COLA (8.7% for 2023) to your PIA and rounds it to the next lowest dime.
It runs your PIA through a formula to adjust it up or down if you claimed benefits before or after your FRA and rounds that to the next lowest dime.
It subtracts the cost of your Medicare Part B premium if you’re already on Medicare.
It rounds the resulting amount down to the next lowest dollar.

How this affects your Social Security checks

To put this in perspective, let’s say you have an FRA of 66, applied for Social Security at 62, and have a PIA of $1,680 in 2022. You’d receive a monthly benefit of $1,089 this year after shrinking your benefit 25% for early claiming and subtracting your $170.10 Medicare Part B premium.

Here’s how the government would figure your 2023 benefit based on the information above:

First, it would add the 8.7% COLA to your PIA of $1,680, giving you a new PIA of $1,826.10 in 2023 after rounding down to the nearest dime.
Next, it would reduce your PIA amount by 25% because you claimed Social Security at 62. That would bring your benefit to $1,369.50 after rounding.
Then, the government would subtract $164.90 from each check for your 2023 Medicare Part B premium, leaving you with $1,204.60.
Finally, it would round the result to the next lower dollar, leaving you with a take-home benefit of $1,204 per month.

A $1,204 benefit in 2023 is actually a 10.6% increase over your $1,089 benefit for 2022. Had you just added 8.7% to your $1,089 monthly benefit, you’d only get about $1,183 per month.

The extra money comes from the fact that Medicare Part B premiums are decreasing in 2023. So seniors won’t have as much withheld from their checks for healthcare as they do this year. This results in an even bigger benefit increase for those who are already on Medicare.

But you could also see a smaller increase in your take-home benefit if you’re signing up for Medicare for the first time in 2023. Now, you’ll have these premiums automatically withheld from your Social Security checks, which will offset some of the 8.7% COLA. The same could be true for some seniors who switch from Original Medicare to Medicare Advantage plans if they elect to have their Medicare Advantage costs taken out of their Social Security checks as well.

How to know how much your checks will actually increase

Most people don’t know their PIA off the top of their heads, and that makes it difficult to estimate exactly how much your checks will grow. But fortunately, you don’t have to go through all the math listed above.

Beginning in December, the Social Security Administration will mail out COLA notices to all Social Security recipients, informing them of their new 2023 benefits. But those who don’t want to wait that long can create a my Social Security account to find out a little faster. Notices on 2023 benefits will appear here in early December before the mailed notices go out. Once you have this information, you can start building your budget for next year.

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