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Social Security recipients will receive an 8.7% increase in their benefit amounts beginning in January of 2023, the largest increase since 1981.

In most years, Medicare part B costs have also gone up, reducing the impact of this “pay raise.”  However, going into 2023, Medicare premiums are set to stay flat or even decrease. This is because of the large increase last year, which was tied to a new calculation in the cost of an Alzheimer’s treatment.

Cost Of Living Adjustment (COLA)

This cost-of-living adjustment, commonly referred to as COLA, is calculated each year in the third quarter by the Social Security Administration. The committee looks at something called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

The monthly results for the third quarter of the current year are compared to the third quarter of the prior year. The difference in this CPI-W factor is what determines how much Social Security will increase. If there is no difference, then no increase is awarded. Historical Social Security COLA data is below.

Chart showing Social Security Cost-of-living Adjustments

When To Start Collecting Social Security

If you haven’t started Social Security yet, there are several key items to consider. You can start as early as age 62, but your payment will be lower. Or wait until age 70 and maximize your payments. Your family health history and longevity may be a determining factor when to start.

There are also spousal benefits and survivor benefits that can factor into your decision. To calculate your estimated payment, create a personal account on the Social Security website. COLAs are built into future payments, even if you delay taking social security.

Social Security Maximum Payment for 2023

Currently, Social Security’s full retirement age (FRA) is 67 for those born since 1960. In 2023, the maximum payment for people at full retirement age is $3,627 per month, or $43,524 per year. If you wait until age 70 to begin drawing benefits, the maximum payment is $4,555 per month, or $54,660 per year.

Social Security Concerns

Social Security is a program that has supported American retirees since 1935. Retirees rely on and enjoy the benefits that it provides, yet this helpful program does not operate without challenges.

With the baby boomer generation retiring, the Social Security fund is expected to take a big hit over the next couple of decades and adjustments will need to be made. Since workers fund Social Security, a sudden drop in the number of people working will cause a drop in the funding. On top of this, the trust funds that back Social Security are projected to be lower than the funding rate in 2034, which would cause a reduction of approximately 25% of the promised benefits that everyone receives. The SS administration will more than likely meet these funding challenges by increasing the FRA and/or raising the contributions of current workers.

Inflation and Your Retirement Plan

Certainly, no one will complain about an increase in their Social Security check this coming year, but for most of us, it’s unlikely to dramatically change your lifestyle. Remember, it’s not a “pay raise” if the cost of goods and services you purchase continue to go up. It only keeps you “even” with the purchasing power of a dollar.

Having a financial plan in place to use as a benchmark for your retirement cash flow and investment strategy will better align your goals with inflation. For example, if you were to buy a 2-year bond or CD that’s paying 4%, and inflation is also at 4%, it’s easy to see that you’re not really getting ahead. More than likely an investment strategy of both bonds and stocks will help you better prepare for inflation and lead to financial freedom and an amazing retirement life.


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