Social Security: 8.7% COLA in 2023
In mid-October every year, the U.S. Bureau of Labor Statistics releases its anticipated report on changes (usually increases) to the Consumer Price Index over the past 12 months.
Why is this little, esoteric government report — actually called the Consumer Price Index for Urban Wage Earners and Clerical Workers — so popular? Because for the past 48 years, it’s the report that determines the cost-of-living adjustment (COLA) that Social Security beneficiaries will get the following year.
I’m sure you’ve already heard, all 65 million Social Security beneficiaries’ checks are going up 8.7% in 2023.
And even though this is the biggest increase in many decades, I always dread mentioning COLAs in this column because every time I do, I am flooded with emails from readers complaining that the increase is not enough.
Yet here’s the rub: many economists and social planners believe Social Security COLAs are too generous. That’s why most discussions of long-range reform for Social Security include proposals to reduce cost-ofliving increases.
Due to these increases, the average monthly retirement check will be $1,827 in 2023, a $146 increase from the 2022 level. The maximum Social Security check for a worker turning full retirement age in 2023 will be $3,627, compared to $3,345 in 2022.
And please note that $3,627 is the maximum for someone turning full retirement age in 2023. That does not mean it is the maximum Social Security payment anyone can receive. There are millions of Social Security beneficiaries who get much more than that, primarily because they worked well past their FRA and/or delayed starting their benefits until age 70.
Here’s another important point about the COLA.
Many readers have been asking me if they must file for Social Security benefits in 2022 to get the COLA that’s paid in January 2023. The answer is no.
The COLA will be built into the benefit computation formula, so even if you don’t file for Social
Security until next year or some subsequent year, you’ll still get the 8.7% increase.
Although this is a Social Security column, I must mention the upcoming decrease in the Medicare Part B premium, which is deducted from Social Security checks for most people.
In 2023, the basic Part B premium will be $164.90. That’s $5.20 less than the 2021 rate. And as has been the case for 20 years now, wealthier people will pay more than the basic premium.
Regarding Medicare premiums, I will make this quick point. Even though they are linked in the minds of most older adults, Social Security and Medicare are entirely separate programs, administered by entirely separate federal agencies, and they have entirely separate rules and regulations regarding their benefit and payment structures.
For example, I already explained how Social Security COLAs are figured.
The Part B Medicare premium increase has nothing to do with the CPI.
Instead, by law, it must be set at a level that covers 25% of the cost of running the program. Taxpayers pick up the remaining 75%.