2023 COLA Increase: How Much Will Social Security Go Up?
Will the cost of living adjustment be a record high?
Social Security recipients will get some good news in 2023: an increase in their monthly benefit amount, or COLA, based on the Consumer Price Index from the third quarter of 2022. But that doesn’t necessarily mean you’ll receive more money each month because it also depends on your age, your current monthly benefit amount and when you first started collecting benefits.
Understanding how Social Security gets its money
The Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act (SECA) are the two laws that create the Social Security system. FICA taxes are taken out of your paycheck, and SECA taxes are paid by self-employed individuals. The money collected through these taxes goes into the Social Security Trust Fund. The interest earned on this fund is used to help pay benefits.
The $64,000 question : How much will my Social Security check be in 2023?
First, let’s start with a little history. The Social Security COLA (cost-of-living adjustment) 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 urban workers purchase for day-to-day living.
In 2020, there was no COLA because prices didn’t go up enough from 2019 to 2020. However, there was a 1.6% COLA in 2019, which was the biggest increase since 2012.
So, what does this mean for 2023? We won’t know until closer to the end of 2022, but we can make an educated guess based on historical data and current trends.
The Senior Citizens League, a nonpartisan senior organization, now estimates the cost of living adjustment for 2023 will be 10.5% based on new consumer price index data for June released Wednesday.
According to The Senior Citizens League, a 10.5% COLA would equate to a $175.10 increase in the average monthly retirement benefit of $1,668.
Is there a way to estimate what my benefit increase might be in 2023?
According to the Social Security Administration (SSA), 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 changes in prices paid by urban consumers for a market basket of goods and services.
The SSA looks at the average CPI-W for the third quarter of the current year and compares it to the average CPI-W for the third quarter of the last year in which there was an increase in benefits. If there is an increase, then benefits are increased in order to keep up with inflation.
Why does my check increase every year by more than it did the year before?
The answer has to do with the Cost of Living Adjustment, or COLA. The COLA is meant to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits keep pace with inflation.
According to the Consumer Price Index (CPI-W), there was an average 1.6% increase in prices from September 2020 to September 2021. This means that if you were receiving $1,000 per month last year, your benefits would go up by about $16 this year.
When is my next opportunity to get an automatic benefit increase via cost of living adjustment (COLA)?
COLAs are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is released by the Bureau of Labor Statistics (BLS) at the end of each calendar year.
If there is an increase in the CPI-W from the third quarter of the previous year to the third quarter of the current year, then there will be a COLA for Social Security and Supplemental Security Income (SSI) benefits in the following year.
The CPI-W rose 0.3% in 2020, so there will be a 0.3% COLA for benefits payable in 2021. The next opportunity for a COLA will be in 2023.
How to collect the max Social Security $50,328 per year in benefits
Saving for retirement is difficult, and Social Security can help bridge the gap between what you have saved and what you will need to retire comfortably.
According to the Social Security Administration, the average retiree receives just under $1,700 per month in benefits. That works out to about $20,000 per year.
However, the maximum benefit you can receive is $4,194 per month or $50,328 per year. While few employees will be able to meet all of the requirements for the maximum benefit amount, there is no harm in attempting to come as close as possible. What you’ll need to do is as follows.
#1: Work at least 35 years
The amount you’ll receive if you file at your full retirement age (FRA) is calculated by taking an average of your wages over the 35 highest earning years of your career and adjusting that number for inflation.
If you haven’t worked for 35 years, zeros will be added to your earnings average. As a result, the benefit amount will be reduced. To earn the maximum of $50,328 per year, you must work for at least 35 years before claiming benefits.
#2: Delay claiming your benefits
If you file for Social Security at your FRA, you will receive the full amount based on your work history. Your FRA is either 66, 67, or somewhere in between, depending on the year you were born.
To receive the most benefits, you must wait until you are 70 years old to file. In fact, even if you meet all of the other requirements for the maximum benefit, if you file at the age of 67, the most you’d receive is $3,568 per month, which is roughly $600 less than the maximum payments.
#3: Consistently reach the earnings limit
The maximum taxable earnings limit is the amount of income that can be taxed by Social Security. The higher your benefit amount, the closer your income is to this limit.
This limit varies from year to year to account for inflation adjustments, but it will be $147,000 in 2022. For comparison, the maximum taxable earnings limit in 1987 was $43,800 per year.
To receive the maximum benefits of $50,328 per year, you must consistently meet these income limits throughout your career.
Final Thoughts
Keep in mind that a record Social Security COLA will have an impact on the projected depletion dates. In June, the annual Social Security trustees report projected that the program’s combined funds would be depleted in 2035, at which point 80% of benefits would be payable. This is based on data through the middle of February.
This is the end of today’s post. My readers can sign up for a membership through the following link to get full access to every story I write and I will receive a portion of your membership fee.
Sign-up link: https://midwestblogging66.medium.com/membership
Thank you so much for your continuous support. See you in the next story. Happy learning to everyone!
