How much will the cost of living adjustment (COLA) increase in 2023 due to inflation?

Social Security recipients will eagerly await news of the cost of living adjustment (COLA) figure for 2023. Each year, the Social Security Administration (SSA) introduces a nationwide increase in each beneficiary’s payment to account for the effects of inflation.

It’s no secret that inflation is currently very high and that increasing the COLA will be needed more than ever. Last month’s Consumer Price Index (CPI) report revealed that Iinflation was 9.1% in June in the previous 12 months. This is the fastest rate of price increase since 1981.

The SSA uses a slightly different calculation, known as the Consumer Price Index for Urban Wage and Clerical Workers (CPI-W), to determine the COLA figure. The CPI-W is even higher, at 9.8% over the past year.

This has led the Senior Citizens League, a non-partisan group that advises older people on financial matters, to believe that COLA increase in 2023 could reach 10.5%.

How much more will the average Social Security recipient get?

In 2022, the average monthly Social Security retirement benefit is $1,668, according to data provided by the Senior Citizens League. If a 10.5% COLA increase were to come into effect, the average beneficiary would receive an additional $175.10 per month.

At this point, however, the size of next year’s COLA increase is purely speculative and the exact figure will be decided in the coming months. The SSA takes the average of data from the third quarter of the current year and compares it to the equivalent data from the previous year to arrive at an estimate of inflation.

With that in mind, the actual COLA figure could be significantly lower if prices rise slowly, as they are generally expected to do. At a White House press briefing last week, press secretary Karine Jean-Pierre said: “Looking forward, there are a number of reasons why we expect these high prices decrease over the next few months.”

With great uncertainty regarding the rate of inflation in the coming months, the Senior League has also released upper and lower estimates for the COLA increase in 2023. They calculate that if inflation were to cool down, the COLA boost could drop to around 9.8%, but a further increase could see that number rise to 11.4%.

For context, the 2022 increase was 5.9%. This is the largest increase in COLA in nearly 40 years, underscoring the scale of the increase projected for 2023.

Eleanor C. William