Each fall, the Social Security Administration (SSA) releases their Cost-of-Living Adjustment (COLA), which adjusts Social Security checks that millions of Americans rely on for their income. They decide this number based on several factors that they track throughout the year, and then implement the increase in January.
Now that the 2023 COLA has been released, what is it and what does it mean for you?
Today, October 13, 2022, the SSA announced the 2023 COLA, and it’s historically large. Coming in at 8.7 percent, the COLA is roughly in line with the predictions, making it the largest COLA in more than 40 years by percent increase and the largest dollar increase ($144) in history.
This is great news for seniors, who are looking at a major increase to their monthly Social Security checks. How much can you expect?
|Type of Benefit||2022 Average||2023 Average|
2022 and 2023 estimates come from the 2023 Social Security Changes fact sheet. All are based on estimates for exemplary purposes only and may not reflect your 2022 or 2023 Social Security benefit.
It’s worth mentioning that this COLA is an estimate, and that inflation affects different areas of the country unevenly. Inflation may be higher in one area than others or certain products (like gasoline or milk) may be more expensive near you than somewhere else. In that case, the COLA may not cover the cost-of-living increase for you as much as it would for those in other areas. The opposite could be true, where you may get a greater spending boost from your COLA if inflation isn’t as large where you live.
Generally, the annual COLA is very important to the costs associated with Medicare, especially Medicare Part B. The Centers for Medicare & Medicaid Services (CMS) utilize the COLA as a guide for health care costs for the following year. This means that depending on the COLA, the cost-sharing of Original Medicare may increase. The Medicare Part B premium is almost directly influenced by the COLA considering the premium increase cannot be larger than the COLA. If it is, you can be held harmless, which freezes your premium at the previous year’s amount. For more information, read “Why Did My Medicare Part B Premiums Change?”
This year is a bit different, however. CMS didn’t need to take the COLA into account this year due to major savings that Medicare experienced the year before. This allowed CMS to announce the costs of Medicare in 2023 on September 27, 2022, before the COLA had even been revealed. This is unlikely to be the norm moving forward, so we can expect next year’s COLA to be influential in Original Medicare’s costs once again.
The 2023 Social Security COLA is the largest since 1981, which is surprising when you put this increase into context. As you can see from the table below, the COLA has rarely gone above 4 percent with the lifetime average of 3.6 percent. This COLA is more than double the lifetime average. The average is further inflated by the pre-1983 COLAs. In 1983, the SSA changed the COLA formula, which explains why the earlier COLAs were so large compared to those after. Comparatively, the COLA from 1975 to 1982 averaged 8.7 percent, compared to 2.65 percent between 1984 and 2022. (There was no COLA in 1983).
Even compared to the pre-1983 COLAs, 2023’s is quite large. At 8.7 percent, this year is behind only 1980 (14.3 percent), 1981 (11.2 percent), and 1979 (9.9 percent) as the largest COLA ever. As we mentioned earlier, since the Social Security benefit is now larger than it was in those years, the 2023 is the largest dollar amount increase ever.
● ● ●
So, what does this historically large COLA mean for seniors? Simply put, it means more money in your pocket, especially when you consider that Medicare costs aren’t raising at the same rate.