Social Security benefits will increase by 8.7% next year in response to high inflation, according to the federal government. That will be the largest cost-of-living adjustment (COLA) since 1981. That is also higher than the COLA for 2022, which was already a high 5.9%.
According to Social Security, benefits will increase on average by more than $140 per month starting with payments being sent on Dec. 30. The estimated average monthly Social Security benefit payable in January 2023 will increase from $1,657 in 2022 to $1,801 for an individual. The average monthly benefit for a couple who are both receiving benefits will rise $240, from $2,753 to $2,993. And the maximum Social Security benefit for a worker retiring at full retirement age will increase from $3,345 per month to $3,636, an additional $291.
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Also, more of workers’ income will be subject to the Social Security tax in 2023. There will be an added $291 Social Security tax applied to the first $160,200 of earnings, up $13,200 from $147,000 in 2022.
And based on the increase in average wages, the earnings limit for workers who are younger than full retirement age (67 for people born after 1960 will increase to $21,240. The earnings limit for people reaching full retirement age in 2023 will increase to $56,520.
COLAs are calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (similar to, but not exactly the same as, the urban dwellers’ consumer price index used in inflation reporting). If prices don’t increase and even fall, the COLA is zero. That happened in 2010 and 2011, as the economy struggled to recover from the Great Recession, and again in 2016, when plummeting oil prices swept away any chance of a COLA for that year.
How Is the 2022 Social Security COLA Calculated?
As mentioned, any COLA adjustment is driven by changes in the wage earners’ consumer price index. National average prices are used, not regional. SSA also calculates the percent change between average prices in the third quarter of the current year with the third quarter of the previous year. The reason the fourth quarter isn’t used is because that number is typically not available from the U.S. Bureau of Labor Statistics until mid-January, and the SSA has to make its adjustment on January 1.
History of Social Security COLAs, 2009-2022
- 2022: 5.9%
- 2021: 1.3%
- 2020: 1.6%
- 2019: 2.8%
- 2018: 2.0%
- 2017: 0.3%
- 2016: 0%
- 2015: 1.7%
- 2014: 1.5%
- 2013: 1.7%
- 2012: 3.6%
- 2011: 0%
- 2010: 0%
- 2009: 5.8%
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