The Social Security Administration announces the cost-of-living adjustment (COLA) for the following year each year. With the bout of inflation hitting American wallets over the past year, the Social Security cost-of-living adjustment could be huge for 2023.
The September 2022 Consumer Price Index (CPI) report is set to be released on October 13, and the Social Security COLA could be announced around that time.
When was the 2022 Social Security COLA announced?
Last year, the Social Security Administration released the 2022 Social Security COLA on the same day the September CPI results were announced. There is no guarantee that this will be the case this year.
How is the Social Security COLA calculated each year?
The short version of this answer is that the annual Social Security COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Works (CPI-W) from the prior year’s third quarter.
The 2023 COLA is based on the CPI-W from the third quarter of 2022. The cost-of-living increases are rounded to the nearest one-tenth of 1%. Looking back, the CPI for August was 8.3%, while the CPI for July was 9.1%.
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How big will the Social Security COLA be for 2023?
There is a variety of estimates floating around. Some experts say the 2023 Social Security COLA could be as high as 10%. Something more around 9% is probably more likely. Either way, this could be the largest Social Security COLA since 1981.
Does the Social Security COLA matter?
I hope your fun financial planner has done such an excellent job for you that you don’t even notice the Social Security COLA each year. Sadly, this is not the case for many retirees. Around 12% of men and 15% of women rely on Social Security for more than 90% of their retirement incomes, according to the Social Security Administration.
For 2022, the average Social Security check averaged $1,669 per month. I know most of you would have trouble living off of this amount, which is below the average cost of rent in Los Angeles, not to mention necessities like eating and utilities.
When you are on a fixed income, every penny counts.
Get Your Personalized Social Security Estimate
I would encourage you to take a moment and download your Social Security Estimate from ssa.gov. It will give you the estimated retirement benefits you can expect to receive based on your work history and the age at which you should choose to begin receiving benefits.
Knowing these numbers will help you understand what else you need to do to plan for a secure retirement.
Social Security is not meant to replace your entire income in retirement, and you will likely need to invest in IRAs, Roth IRAs, 401(k)s, or other workplace retirement accounts. On a brighter note, Social Security is a lifetime benefit that should pay out as long as you are alive.