As we live through 2023, many social security beneficiaries are wondering how their benefits will be affected by the cost of living adjustment (COLA increase) in 2023. The COLA is a yearly adjustment made to Social Security benefits to help keep up with the rising cost of living.
Social Security is a crucial lifeline for millions of Americans who have retired, become disabled, or lost a spouse or parent. It provides a steady stream of income to help cover basic living expenses and support financial independence for social security beneficiaries. However, as the cost of living continues to rise, it’s important to understand how Social Security benefits are adjusted to keep pace with inflation.
The cost of living adjustment (COLA) is a yearly adjustment made to Social Security to help offset the increased cost of living. In this article, we will explore how the COLA is calculated for Social Security and what the COLA increase in 2023 means for social security dependents.
What is the COLA?
The COLA is an adjustment made to the benefits from Social Security each year to help keep up with the cost of living. It is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures the changes in the prices of goods and services that people buy for day-to-day living expenses. If the CPI-W increases from one year to the next, then Social Security retirement beneficiaries will receive a COLA to help offset the increased cost of living. The COLA increase in 2023 is 8.7%.
How Is the COLA Calculated?
The COLA is calculated by comparing the average CPI-W for the third quarter of the current year to the average CPI-W for the third quarter of the previous year. If the current year’s average is higher than the previous year’s average, then Social Security dependents will receive a COLA equal to the percentage increase.
For example, if the average CPI-W for the third quarter of 2022 is 250 and the average CPI-W for the third quarter of 2021 was 240, then the percentage increase would be calculated as follows:
(250 – 240) / 240 = 0.0416 or 4.16%
This means that Social Security retirement beneficiaries would receive a 4.16% COLA for 2023, for example. The actual increase in benefits will depend on the individual’s benefit amount and the amount of the COLA.
Who Is Eligible for the COLA?
The COLA (cost of living adjustment) applies to most Social Security beneficiaries, including retired workers, disabled workers, and surviving spouses and children. However, there are some exceptions.
What Does the COLA Mean for Social Security Beneficiaries?
The COLA is an important adjustment that helps ensure that benefits from Social Security keep pace with the rising cost of living. For many beneficiaries, the COLA can mean the difference between being able to afford basic necessities like food, housing, and healthcare and struggling to make ends meet.
For example, let’s say that a retired worker is receiving a Social Security benefit of $1,500 per month in 2022. Since the COLA for 2023 is 8.7%, their benefit would increase by $130.5 per month to $1,630.50. Over the course of a year, this would add up to an extra $1566 in benefits.
While the COLA is a positive adjustment for Social Security retirement beneficiaries, it is important to note that the actual increase in benefits may be offset by other factors.
Additionally, the COLA may be offset by increases in other expenses, such as rent or healthcare costs. It is important for Social Security dependents to budget carefully and plan for these potential expenses.
Analyzing the COLA Increase in 2023
The cost of living adjustment (COLA) is an important adjustment that helps ensure that Social Security benefits keep pace with the rising cost of living. The COLA is an important benefit for Social Security dependents as it helps keep pace with the rising cost of living. By understanding how the COLA is calculated and its potential impact on their benefits, beneficiaries can make informed decisions about their finances and plan for their future.