A historically high cost of living adjustment (COLA) is on the way for the approximately 66 million Americans who receive Social Security benefits. On October 13, the Social Security Administration announced an 8.7 percent increase to monthly benefits for 2023. This is the highest COLA increase in more than 40 years.
Each year, the Social Security Administration applies a COLA to ensure that the purchasing power of these benefits is not eroded by inflation. These adjustments are based on the percentage increase in the Consumer Price Index.
Congress enacted the COLA provision as part of the 1972 Social Security Amendments, and automatic annual COLAs began in 1975. Before that, benefits were increased only when Congress enacted special legislation.
Why such a large Social Security COLA increase?
This significant boost to Social Security benefits comes amidst another historic economic indicator – high inflation. U.S. consumer prices increased more than expected in September as rents surged by the most since 1990 and the cost of food also rose, reinforcing expectations the Federal Reserve will deliver a fourth straight 75-basis-point interest rate hike in November.
Consumer price and inflation data follows another strong employment report, which showed solid job gains in September and a drop in the unemployment rate to a pre-pandemic low of 3.5 percent.
These economic factors played a direct role in the Social Security Administration’s 2023 COLA calculation. It is an almost unprecedented figure, with the last increase of more than 7 percent dating back to a 7.4 percent increase in July 1982. The 2023 COLA also tops the prior year’s increase of 5.9 percent.
What will this mean for monthly benefits?
Starting in January 2023, the average monthly Social Security benefit will increase by more than $140 per month. Social Security recipients are normally notified about their new benefit amount by mail starting in early December. The fastest way to find out the new benefit amount is to access the COLA notice online at www.SSA.gov/myaccount.
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