If you’re one of the 70 million Americans relying on social security, you’re probably worried about whether your benefits will keep pace with rising prices in 2023. The good news is that the Social Security Administration announced the most significant cost-of-living adjustment in four decades. Read on to find out what this means for you.
COLA Increase for Social Security and SSI Benefits
In October 2022, the Social Security Administration (SSA) announced its annual adjustment to Supplemental Security Income (SSI) and social security benefits. SSI and social security payments will increase by 8.7 percent in 2023— the largest cost-of-living adjustment (COLA) in 40 years.
The Social Security Act links benefits to the Consumer Price Index compiled by the federal Bureau of Labor Statistics. Massive inflation in the third quarter of 2022 has diminished the purchasing power of social security. That’s why the federal government has approved a significant benefit increase for 2023.
When Will the SSA/SSI Cost of Living Adjustment (COLA) Take Effect?
For the 65 million social security recipients, the 8.7 percent cost-of-living adjustment will go into effect in January 2023. SSI beneficiaries will see increased payments a little earlier on Dec. 30, 2022.
How is the Social Security COLA Set?
Federal COLAs are pegged to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) compiled by the Bureau of Labor Statistics. The CPI-W measures the cost of living in US cities by looking at how much urban wage earners and salaried white-collar workers spend on a basket of everyday items.
The government compares the average CPI-W of the three months (July, August, September) in the third quarter of each year with the average of the same period in the previous year to reasonably guess how much prices will increase in the entire year. In the third quarter of 2022, inflation soared to nearly 9 percent.
|CPI-W||% Toward2023 COLA|
How Much Will Benefits Go Up?
On average, social security beneficiaries will see their monthly checks increase by around $140. However, the exact amount will vary for different classes of social security recipients. The maximum monthly social security benefit at retirement age has been raised from $3,345 to $3,627.
In its annual COLA notice, The Social Security Administration released the following table of average social security benefits payable in 2023.
2023 SSI Amounts
As we noted earlier, the 8.7 percent COLA also applies to monthly SSI payments. In 2023, the monthly SSI benefit will increase to $914 per individual, $1371 for eligible couples, and $458 for an essential person, which includes all live-in caretakers.
SSI Student Earned Income Exclusion COLA
The student-earned income exclusion will also go up by 8.7 percent:
- The monthly student-earned income exclusion will increase from $2,040 to $2,220
- The annual maximum earned income excluding will increase from $8,230 to $8,950
Of the various kinds of income exclusions used to determine eligibility, the student earned income exclusion is the only one with a maximum that tracks increases in the cost of living. A student who is blind or has another disability may earn a certain amount of income that isn’t counted against their SSI payments.
FERS and CSRS COLA
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is also used to determine the cost-of-living adjustment for the two federal retirement systems: The Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS).
Like the Social Security COLA, the CSRS COLA tracks the CPI-W exactly. This is because CSRS retirees cannot claim social security and derive their retirement benefits exclusively from their CSRS pension. However, FERS retirees also receive a social security check, so their COLA equals the CSRS minus 1 percent (7.7 percent).
Other 2023 Social Security Adjustments
While the social security tax rate will remain the same in 2023—7.65 percent for employees and 15.3 percent for the self-employed—there are a few other significant changes to social security policy:
- The maximum taxable earnings cap will be raised from $147,000 to $160,200
- The amount of earnings required for a quarter of coverage will increase from $1,510 to $1,640.
- The Retirement Earnings Test Exempt Amount for those under retirement age will rise from $19,650 to $21,240 annually. For those at the full retirement age, the number will increase from $51,960 to 56,620 annually.
Social Security Disability Threshold Adjustments
The SSA is also raising the thresholds for how much people with disabilities can earn from substantial gainful activity (SGA) before losing eligibility for disability payments.
Substantial Gainful Activity (SGA) 2022 2023
Non-Blind $1,350/mo. $1,470/mo.
Blind $2,260/mo. $2,460/mo.
Trial Work Period (TWP) $ 970/mo. $1,050/mo.
Changes in Medicare
In addition to the annual COLA change, the federal government announced some additional measures to provide relief from inflation to retirees, such as changes in Medicare benefits. Medicare premiums will be lower for Medicare Part B, but Medicare Part A will significantly increase.
Modest Increase in Medicare Part A Costs
There will be a marginal increase in some Medicare Part A services prices. Part A covers things like inpatient hospitalization, rehabilitation, hospice care, and skilled nursing facilities.
- The inpatient hospital deductible will increase from $1,556 to $1,600.
- Daily coinsurance for the 61st through the 90th day will increase from $389 in 2022 to $400.
- Daily coinsurance for lifetime reserve days will increase from $778 to $800.
- Skilled nursing facility coinsurance will increase from $194.50 to $200 in 2023.
Reduction in Medicare Part B Premiums
While out-of-pocket costs for inpatient services under Part A will go up, retirees will see a slight decrease in their monthly premiums and annual deductibles under Medicare Part B, which covers doctor’s visits, outpatient hospital care, medical devices, and many other everyday health expenses.
- The standard monthly premium will decrease from $170.10 to $164.90.
- The annual deductible will decrease from $233 to $226
Medicare Part D Adjustment
If you are an individual with an adjusted gross income (AGI) of more than $97,000 or a couple of Medicare beneficiaries with an AGI of more than $194,000, you may see an increase in your monthly adjustment amount under Medicare Part D, the component of Medicare that covers prescription drug costs.
The monthly adjustment amount varies by AGI:
Due to high inflation, the federal government will increase retirement and disability benefits by 8.7 percent. The average retiree will see a $140 increase in their monthly social security check, while most beneficiaries of Supplemental Security Income (SSI) will see their annual benefits increased from $10,092 to $10,970.
For more information, visit the SSA website.