Social Security Benefits Increase 2023: Retirement benefits for Social Security retirees are expected to increase by the most in decades in 2023.
Markets tumbled earlier this week following new August inflation data, with the Dow Jones Industrial Average going down 1,250 points. Due to higher inflation last month, this was the case.
Markets aren’t the only things affected by inflation data; Social Security benefits will also be affected. Inflation is expected to increase retirees’ benefits in 2023 to one of the highest levels in decades.
As of August inflation data, we don’t know the exact amount yet.
Adjustment for cost of living
Cost of living adjustments (COLAs) are incorporated into Social Security benefits each year to account for inflation. Keeping retirees’ purchasing power in mind, Social Security benefits should rise if costs rise.
In the third quarter of the year, during the months of July, August, and September, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used to calculate the COLA.
It compares these monthly averages with the third-quarter average CPI-W a year earlier. CPI-W percentage increases from the previous year become COLA increases for the following year. A 5.9% increase in CPI-W in 2021 was a large increase by itself.
There has been a 40-year high in inflation this year, as rent, medical care, and food prices have soared. Therefore, COLA increases in 2023 may be even higher than this year. Even though September inflation data isn’t available yet, it is now possible to calculate the COLA increase from July and August CPI-W data.
CPI-W averaged 291.924 in July and August this year. A CPI-W average of 268.088 was recorded for July and August. As a result, the CPI-W has increased by 8.89% for these two months.
September will bring what?
This year, inflation has been difficult to predict, so what happens in September is anyone’s guess. Although August’s inflation number ticked up slightly from July to August, it still came in lower than the same month last year. According to my current forecast, the inflation rate will decline in September.
A similar hike is expected at the Fed’s upcoming meeting this month. This is after the Fed raised its benchmark overnight lending rate by three quarters of a percentage point twice in June and July. In spite of the intensity of these rate hikes, it will take time to have an impact on the economy. Even the hike in June may not have fully impacted the economy.
If inflation does decline and there is another drop in the CPI-W in September, that would pull down the COLA increase slightly from that 8.89% number. But whatever happens in September, I still suspect the COLA adjustment for 2023 will be higher than 8%, which would still be the largest COLA increase seen in decades.
Is 2023 likely to bring an increase in benefits?
The Senior Citizens League predicts an 8.7% increase in COLA based on the August CPI. For most recipients, this would amount to $144 extra a month.
The estimate is considered conservative, however. Boston College’s Center for Retirement Research’s Alicia Munnell predicted a boost of 8.9% at the lowest end and 9.5% at the highest end in a Marketwatch column on Aug. 30.
“Somewhere in the 9% range is probably a reasonable guess,” Richard Johnson, director of the retirement policy program at the Urban Institute, told AARP that same month.
Monthly checks would increase by $150 with a 9% increase.
How long will it take for my Social Security check to increase?
Benefits for December 2022 will increase by 25%, which will appear on January 2023 checks.
Your Social Security benefits are paid on the second Wednesday of the month if you were born between the first and tenth day of the month.
Your first COLA increase will be paid on Jan. 18, 2023, if your birthday falls between November 11 and December 20.