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Social Security Cost of Living Adjustment (COLA) on track to be the largest since 1981  Thumbnail

Social Security Cost of Living Adjustment (COLA) on track to be the largest since 1981

Social Security payments receive an inflation adjustment every year based on the Consumer Price Index (CPI). If inflation continues at current levels over the next 2 months, Social Security recipients will see their monthly check amounts increase by about 9.6% in 2023. For example, the average Social Security recipient receives a monthly benefit of $1,688. A 9.6% increase is around $160 per month which represents about $1,900 extra income over the course of one year. 

When determining the increase amount, the Social Security Administration looks at average inflation figures for July, August, and September and compares them to the prior year’s figures. That means we will have to wait until September’s data is in before the final amount is determined and announced in October.  

While an increase in benefits is welcome, the intent of the COLA is to preserve purchasing power. This year’s COLA was 5.9% which failed to keep pace with inflation. Furthermore, single taxpayers with income of more than $25,000 and married couples with income over $32,000 pay income tax on a portion of their Social Security benefits. If you have income above those levels outside of your Social Security check, you will likely see an increase in your tax bill.  

Wage earners pay--and employers match--a 6.2% Social Security tax on earnings up to $147,000 in 2022. That limit, which is linked to the national average wage index, is projected to increase 5.5% to $155,100 next year.  

As a side note, for retirees on Medicare, Part B premiums, which are typically deducted from Social Security checks, rose 14.5% to $170.10 a month in 2022. These premiums are not expected to change in 2023. Medicare Part B covers outpatient care such as doctor visits.  

If you have specific questions pertaining to Social Security, such as when the optimal time for you to start collecting might be, or want to learn more about Medicare and the various options available to enhance your benefits, please contact us. We are happy to have a no-commitment conversation. 


Sources: https://www.wsj.com/articles/social-security-benefits-are-heading-for-the-biggest-increase-in-40-years-11660138256?st=hdv15cyho3hir3x&reflink=desktopwebshare_permalink 



Written by author: Jarrod Jacobi | Senior Financial Advisor | AWMA®


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