Nearly 1 in 5 Americans currently gets Social Security benefits, and those monthly checks account for about 30% of the income of seniors. Many of those individuals saw their benefits stretched thin by inflation over the past year, as rising prices rolled through gas stations, grocery stores, and the Medicare program. But the future is starting to look a little brighter for Social Security beneficiaries.
The standard monthly Medicare Part B premium will drop 3% to $164.90 in 2023, and seniors should get more good news from the Social Security Administration this week. That includes a historic cost-of-living adjustment (COLA) for current beneficiaries, and a bigger maximum retirement benefit for new beneficiaries. Details regarding those changes are likely to appear in a press release on Oct. 13.
Here is what you should expect.
1. Massive cost-of-living adjustment
Social Security benefits are adjusted each year to account for inflation. Those COLAs are based on data from the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, for the third quarter, which runs from July through September. That means the 2023 COLA cannot be calculated until the Bureau of Labor Statistics releases its September inflation report on Oct. 13 at 8:30 a.m. ET.
That said, red-hot inflation has scorched the U.S. economy in 2022, reaching heights not seen since the 1980s. That hints at a massive Social Security COLA next year. In fact, Mary Johnson of The Senior Citizens League says benefits could increase 8.7% in 2023. That would be the largest COLA in the last four decades. Retirees and other beneficiaries should be thrilled with that figure, especially because inflation, as measured by the CPI-W, actually started to cool in July and August. If that trend continues, an 8.7% COLA in 2023 could help Social Security recipients recoup some of the spending power they lost in 2022.
Assuming the COLA clocks in at 8.7%, here is how the average monthly benefit paid to retired workers and their spouses would change in 2023.
- Retired workers: $1,818.29 per month, an extra $145.53.
- Spouses of retired workers: $905.49 per month, an extra $72.47.
As mentioned, the Social Security Administration will probably publish the official 2023 COLA on Oct. 13. In addition, beneficiaries are normally notified by mail about their new Social Security benefit, and the COLA notice can also be viewed through the My Social Security account portal.
2. Bigger maximum retirement benefit
Social Security benefits are based on lifetime earnings and the age at which a person first claims benefits. Eligibility for Social Security begins at age 62, but people who want their full benefit — also known as the primary insurance amount, or PIA — must wait until full retirement age (FRA) to claim Social Security. And those who want the maximum benefit at FRA must earn more than the maximum taxable earnings amount for 35 years. In 2022, that figure was $147,000.
The maximum retirement benefit paid to new beneficiaries at FRA increases each year to account for changes in general wage levels. For example, that figure rose to $3,345 this year, up about 6.3% from the prior year. Given the trajectory inflation has followed, the maximum retirement benefit paid to first-time beneficiaries at FRA could notch another 6.3% increase next year, bumping the payment to $3,555 per month in 2023.
That said, newly minted retirees shouldn’t count their chickens before they hatch. The Social Security Administration will probably publish the official figure on Oct. 13. Of course, very few people are actually eligible for the maximum retirement benefit, but anyone can use the My Social Security account portal to estimate the size of future Social Security checks.