Social Security Benefits Will Increase by a Record 8.7% in 2023
If you’re on Social Security, you can expect your check to increase by 8.7% in January. That’s the biggest cost-of-living adjustment in four decades.
The Social Security Administration made the announcement Oct. 13, the same day new inflation numbers were released.
Here’s what that will look like for the average Social Security recipient:
- Retired workers will get an extra $147 a month on average, bringing the average monthly benefit to $1,827.
- Disabled workers will get an extra $119 a month on average, bringing the average monthly benefit to $1,483.
- The maximum Supplemental Security Income (SSI) benefit for individuals will increase by $73 a month, bringing the maximum monthly benefit to $914.
An 8.7% cost-of-living adjustment (COLA) sounds pretty generous, considering that Social Security benefits increased by 5.9% in 2022 — the largest boost in about 40 years.
But as prices for everything from groceries to housing skyrocket, will an extra $147 a month really be enough for the average retiree?
Why Is this Year’s COLA So High?
Social Security’s annual cost-of-living adjustment is tied to inflation. And inflation has been stubbornly high for over a year now.
The government uses the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, to measure inflation.
Each year, Social Security averages the CPI-W figures from the third quarter and compares it to the previous year’s figure.
Inflation has been at least 8.3% since July. That’s why this year’s Social Security COLA is so large: It needs to keep pace with inflation.
Why a 8.7% COLA Isn’t Great News
If you receive Social Security benefits, you may find that an extra $147 a month doesn’t stretch very far.
While Social Security checks are getting bigger, the price of everyday items like food and housing is also going up.
You’ll have a bigger check, but most of it will be eaten up by higher prices.
Another potential drawback? The large COLA will push some retirees over income thresholds and require them to pay income taxes on part of their Social Security benefits.
Retirees must pay taxes on their Social Security benefits if:
- Half of their yearly Social Security benefits + other income = more than $25,000 for single filers or $32,000 for married couples filing jointly.
If Social Security is your only income, you don’t need to worry about paying taxes on your benefits.
However, if you receive income outside Social Security (like wages from a job or traditional 401(k) withdrawals), this year’s or next year’s cost-of-living adjustments could push you above the threshold of $25,000 for single filers or $32,000 for married couples filing jointly.
“More Social Security recipients pay the tax on a portion of their benefits as incomes increase over time,” said Mary Johnson, an analyst with The Senior Citizen League.
One Silver Lining: Medicare Part B Premiums Are Going Down
The new COLA isn’t all bad news.
The standard Part B premium, which is typically deducted from Social Security benefits, is going down next year by $5.20 per month, or 3%. The annual Part B deductible is also decreasing by $7.
It’s the first time in a decade that Part B premiums have decreased instead of increased.
In years when the COLA is small — or the Part B increase is large — retirees may barely see a boost to their Social Security checks.
But that’s not the case this year. The rising cost-of-living adjustment won’t be eaten up by rising Part B premiums, which means more money in the pockets of Social Security recipients.
What if Your Social Security COLA Isn’t Enough?
There are no easy fixes if your Social Security check won’t go far enough, even with a 8.7% COLA.
If you’re struggling to pay for food, getting assistance from a food pantry or an organization like Meals on Wheels may be an option.
If you have an emergency expense, like you’re facing eviction or an energy bill you can’t afford, try calling United Way’s 211 hotline, which can connect you with local resources.
Here are some other resources:
- How to Find Affordable Senior Housing if You’re Struggling to Pay Rent
- How to Get Cheap or Free Internet Through the Affordable Connectivity Program
- 13 Ways for Retirees to Make Extra Money in Their Spare Time
- 75 of the Best Senior Discounts for Food, Entertainment, Travel and More
- How to Enroll in a Medicare Savings Program
The 8.7% increase in Social Security benefits will certainly help seniors dealing with soaring costs. But it’s essential to be realistic about how far it will actually go in your retirement budget.
Unfortunately, the average Social Security recipient will see most of their pay raise eaten up by rising living costs.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.