Social Security cost of living adjustment 2023 is highest in 40 years

The Social Security Administration announced the increase Thursday after September’s inflation numbers were released. The boost was expected, but will still be welcomed by the more than 70 million people who receive Social Security payments each month.

That’s not just seniors—disabled adults will also get the boost, as will survivors of insured workers and low-income individuals who receive Supplemental Security Income (SSI).

This is a big change from COLA’s for the past decade. In 2021, the COLA was 1.3%, and in 2020, it was 1.6%. You have to go back to July 1981—a period when the US last experienced high inflation—for a COLA above 8% (it was 11.2% that year).

But the adjustment is based on inflation numbers from July, August, and September of the previous year. So seniors and other recipients who have struggled against the persistently rising prices for food, housing, and other necessities will get some relief next year.

“Recipients are making up for some lost ground in purchasing power after last year’s 5.9% increase, well short of the recent inflation rate,” said Mark Hamrick., senior economic analyst at Bankrate. “Given elevated costs for food, home heating and health care/prescription drugs, the budgets of many may remain constrained next year.”

Thursday’s announcement will add about $140 to retirees’ monthly checks, on average, with the Social Security Administration estimating that the average retiree will receive $1,827 a month in 2023. Disabled beneficiaries will receive an average of $1,483.

More than 65 million Social Security beneficiaries will see the COLA reflected in their checks starting in January. About 7 million SSI beneficiaries will get their first increase on December 30, 2022, according to the Social Security Administration.

More good news for retirees? Medicare Part B premiums, which are deducted from Social Security benefits, will decrease next yeargiving enrollees more breathing room.

One thing to watch: Your tax bill. Social Security benefits are subject to income tax, depending on your tax status and other income. More about the potential increase in taxes here.