For 2023, those collecting Social Security will see a cost of living increase of 8.7%. Social Security benefits are increased to keep up with inflation. This increase is officially known as the ‘Cost-of-Living Adjustment (COLA),’ and it is calculated by the Social Security Administration (SSA).
Each year, the SSA determines whether to increase benefit payments for the upcoming year, and factors in the inflation rate when making that decision.
The 8.7 percent cost-of-living adjustment (COLA) will begin with benefits payable to approximately 70 million Social Security beneficiaries in January 2023.
This means that if you are collecting $2,000 a month in 2022, next year you will see that number increase to $2,174 per month. In addition, there will also be an adjustment for tax purposes when it comes to paying into Social Security. The maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $160,200.
The earnings limit for workers who are younger than “full” retirement age (see Full Retirement Age Chart) will increase to $21,240. (We deduct $1 from benefits for each $2 earned over $21,240.) The earnings limit for people reaching their full retirement age in 2023 will increase to $56,520. (We deduct $1 from benefits for each $3 earned over $56,520 until the month the worker turns full retirement age.) There is no limit on earnings for workers who are full retirement age or older for the entire year.
What is the purpose of COLA?
The purpose of the COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) beneficiaries is not eroded by inflation. It is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year. If there is no increase, there can be no COLA.
When Did The Social Security COLA Start?
The Cost of Living Adjustment started in the 1970s when the cost of living rose dramatically in the United States. Many individuals who were employed and working could keep up with the inflated prices by seeking higher wages, but those on fixed incomes struggled to make ends meet. This resulted in a change to the Social Security program that went into effect in 1975. Before that, benefits were increased only when Congress enacted special legislation.
This change was enacted by legislation that ties COLAs to the annual increase in the Consumer Price Index (CPI-W). The change means that inflation no longer drains value from Social Security benefits.
For 2022, a 5.9% COLA increased the benefit payments for those receiving Social Security and Supplemental Security Income. The increased payments began on December 30, 2021. Notably, in 2018 the COLA resulted in a 2.8% increase to benefit payments. This increase was the highest increase since 2011. The highest adjustment in history was made in 1980, when inflation reached over 13%, and the COLA was 14.5%.
The Culbertson Law Group has over 40 years of experience serving the Central Florida area, and we have locations throughout the region in Orlando, Daytona,
and Leesburg. Contact our law office today for further information on how this 2023 Social Security increase impacts you.