Introduction
The Social Security Administration has announced that benefits will increase by 1.3% in 2023, the first cost-of-living adjustment (COLA) since 2019. The increase is based on inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This marks the second year in a row that benefits have increased after a three-year freeze. In 2020, benefits rose by 1.6%, and in 2021 they increased by 0.5%. The 2023 COLA is expected to be about $20 a month for the average retired worker.
How much will benefits increase?
The average Social Security beneficiary will see their monthly payments increase by 1.6 percent in 2020, the program’s trustees announced Wednesday.
The cost-of-living adjustment (COLA) is the largest since 2012, when benefits rose 3.6 percent. In 2019, there was no COLA because inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers was nonexistent.
But this year, the CPI-W jumped 2.8 percent from the third quarter of 2018 to the same period in 2019—its biggest 12-month increase since February 2012—mainly because of rising gasoline and healthcare costs, according to the Bureau of Labor Statistics. The government uses the CPI-W to calculate the COLA.
For a retiree receiving $1,000 a month in benefits, the 1.6 percent COLA would translate into an extra $16 a month starting in January 2020, or $192 for the whole year. A disabled worker getting $1,200 a month would get an additional $19 a month next year; someone with supplemental security income (SSI) would receive an extra $24 per month on average.
What is the cost-of-living adjustment?
The cost-of-living adjustment (COLA) is a feature of some government benefit programs that automatically increases the payments beneficiaries receive to keep pace with inflation. The COLA for Social Security and Supplemental Security Income (SSI) benefits will be 2.8 percent in 2019, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
Some other government programs that have a COLA include veterans’ benefits, military retired pay, and federal civilian employee and retiree annuities. Many private pensions also provide for annual increases tied to the CPI-W. The CPI-W is one of several measures of inflation published by the Bureau of Labor Statistics. It is compiled from the prices of goods and services purchased by urban consumers
How does inflation affect Social Security benefits?
Inflation affects Social Security benefits in two ways. First, the cost-of-living adjustment (COLA) is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W measures inflation in urban areas and is used to adjust Social Security and Supplemental Security Income (SSI) benefits for changes in the cost of living. Second, annual increases in Social Security benefits are based on the National Average Wage Index (AWI), which measures changes in average wages paid to workers. The AWI is used to determine the amount of the COLA and to calculate initial benefits for new beneficiaries.
What other changes are happening to Social Security in 2023?
In addition to the cost-of-living adjustment, Social Security benefits will also see an increase in 2023. The maximum amount of earnings subject to the Social Security tax will increase from $142,800 to $148,000. This means that more Americans will be required to pay into the system, but it also means that benefits will increase for those already receiving them.
The average monthly benefit for retired workers is expected to increase from $1,503 to $1,539, while the average benefit for disabled workers is expected to rise from $1,173 to $1,197. For a complete list of changes coming to Social Security in 2023, visit their website.
Who is eligible for the increase?
The Social Security Administration has announced that benefits for more than 70 million Americans will increase by 1.6 percent in 2020, the largest increase since 2012. The cost-of-living adjustment (COLA) is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which rose by 2.1 percent in the 12-month period ending September 2019.
In order to be eligible for the COLA, you must be a Social Security beneficiary or a recipient of Supplemental Security Income (SSI). If you are eligible for both programs, you will receive an increase in your SSI benefits and your Social Security benefits.
How does the inflation rate affect benefits?
The annual cost-of-living adjustment (COLA) is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W measures changes in the prices of goods and services that affect urban workers.
The Department of Labor’s Bureau of Labor Statistics computes the CPI-W monthly. If there is an increase in the CPI-W from the third quarter of the last year to the third quarter of the current year, then there is an automatic increase in benefits for the following year. The COLA becomes effective with December’s benefit, which is paid in January.
The 2019 COLA was 2.8 percent, so most people receiving Social Security and Supplemental Security Income (SSI) benefits saw a 2.8 percent increase in their payments beginning in January 2019. For example, someone who gets $1,000 a month in Social Security benefits would get an extra $28 a month starting in January 2019.
When will the increase take effect?
The answer to this question depends on when you begin receiving benefits. If you’re already receiving benefits, the 1.6% cost-of-living adjustment (COLA) will be added to your benefits beginning with payments made in January 2020.
If you aren’t yet receiving benefits, the COLA will generally be applied to your benefit starting with the first full month after you become entitled to benefits. For example, if you become entitled to benefits in July 2020, your first COLA would be paid in August 2021.
Conclusion
It’s good news for social security recipients: benefits are set to increase by 1.3% in 2023, due to an uptick in inflation. This means that the average recipient will see their benefits go up by about $20 per month. For those on a fixed income, this is welcome relief. And while it may not seem like much, over time these increases can really add up. So if you or someone you know is receiving social security benefits, be sure to keep an eye out for this year’s cost-of-living adjustment.
