The Social Security Administration this week disclosed the largest payment increase for the program in decades.
The Social Security Administration (SSA) has introduced a cost of living adjustment (COLA) every year since 1975 after assessing inflation rates to determine how much to increase recipient payments to help beneficiaries keep up with the cost of goods.
The most recent COLA marks a record 8.7% rise when taking into account the severe rates of inflation that have been affecting Americans all year. The last time Social Security saw this kind of rise was in 1981 when the SSA announced a COLA of 11.2%.
$144 Increase in Social Security Payments
The good news of the 2023 payment raise comes as a relief to the nearly 70 million seniors and other Social Security claimants who have been trying to make ends meet as prices continue to rise.
The most recent Consumer Price Index data, released on October 13, shows that the price of food has climbed by 11.2% compared to this time last year, while the cost of utilities like electric and piped gas has increased by 19.8% and the cost of housing has increased by 6.6%.
The average monthly benefit will increase by $144 for single filers and $240 for married couples filing jointly in 2023 as a result of the payment increase, or 8.7% higher.
The answer to that question will depend on the type of compensation received. The SSA reports that in January 2023, all beneficiaries of Social Security will start receiving the new payment amount.
Beginning on December 30, 2022, recipients of Supplemental Security Income (SSI) will begin receiving the new payment amounts. Some beneficiaries receive both Social Security and SSI benefits, and they will also be paid on these dates, with SSI payments increasing a little bit before Social Security payments do.
In addition to being a record rise, the COLA for 2023 is remarkable in that recipients will receive the entire increase because Medicare Part B rates will be reduced the following year.
Previously, the COLA was offset by increases in Medicare premiums for services provided by doctors and outpatient hospitals. Medicare premium reductions will also take effect in January 2023.
READ MORE: What is The IRS 600 Dollar Rule? Does It Affect You as a Low-Income Earner?
COLA Increase in 2023 Won’t Guarantee to Help Americans
READ MORE: Georgia Senate Candidate Herschel Walker Gets Tax Break Meant for Texas Residents
Seniors may be able to better their financial status in 2023 with an 8.7% increase. Is such a large COLA, though, really cause for celebration? Or will seniors encounter the same issues as they experienced this year?
In 2023, there’s a good chance Social Security beneficiaries will actually have greater purchasing power. But it won’t happen unless inflation rates start to fall.
Inflation will result in a large increase in benefits for Social Security recipients the following year. Furthermore, if inflation levels fall in the upcoming year (which is probably in the wake of the Federal Reserve’s aggressive interest rate increases), seniors may see their first improvement in purchasing power based on their COLA in years.
However, seniors won’t fare any better if inflation starts to increase once more. They could be in a worse scenario by 2023.
Just think about what happened in 2022. A 5.9% COLA was given to Social Security recipients at the start of the year. That increase was at the time hailed as exceptional, even though it is by no means the highest COLA seniors have ever received.
But consider how the COLA performed throughout 2022. The annual increase rate of the Consumer Price Index (CPI), which has been much more than 5.9%, has put Social Security beneficiaries in a difficult position.
Seniors may be in excellent shape in 2023 if the CPI continues to show inflation rates below 8.7%. But without a crystal ball, we can’t say for sure that won’t happen.
Overall, the COLA for the following year is unequal. Although it’s great that Social Security benefits are rising, the fundamental factor behind this significant increase is the rising cost of living.
We can only hope that the inflation rate stays low enough that seniors can fully benefit from their 2023 COLA and possibly use the extra money to stabilize their finances after a very difficult 2022.