4 Things to Know About Highest Social Security Cost-of-Living Increase in Decades

Many people wait until 70 to draw their first Social Security check. Lane V. Erickson/Shutterstock

Social Security payments will increase by an average of more than $140 per month after the Social Security Administration (SSA) announced the largest cost-of-living adjustment (COLA) since the early 1980s.

The COLA will increase by 8.7 percent for 2023, the SSA confirmed on Oct. 13. But not all federal retirees will see that amount added to their checks. Those in the Federal Employee Retirement System will receive a 7.7 percent COLA starting in January.

The hike came in at 8.7 percent, an attempt to close the gap caused by inflation that reached as high as 9.1 percent in June before tapering off slightly over the summer. Between 2010 and 2020, Social Security COLAs averaged just 1.7 percent.

Starting Next Year

While the announcement came Thursday, the increased payments won’t be distributed until January, according to the SSA.

The payment increase is also permanent, and it compounds. That means the following year’s percentage increase, whatever it ends up being, will be on top of the new, larger payment beneficiaries get after this most recent raise.

More than 65 million Social Security beneficiaries will get an increase. The average recipient will receive more than $140 extra a month beginning in January, according to estimates released by the SSA.

‘Not a Benefit Increase’

One analyst noted that the cost-of-living adjustment is merely designed to keep pace with year-over-year inflation. The consumer price index report released by the Department of Labor on Thursday showed September’s inflation rose 8.2 percent, staying at near 40-year highs.

“This is not a benefit increase, it’s an adjustment to keep pace with inflation, and of course prices are rising to very high levels right now,” Nancy Altman, the co-director of the nonprofit organization Social Security Works, told The Hill in an interview. “But the COLA is an extremely important feature, because without it benefits would erode over time.”

The announcement for a large increase in 2023 isn’t a surprise, according to Ken Thomas, national president of the National Active and Retired Federal Employees Association, due to rising consumer prices and surging inflation.

“However, rising health care costs ... could reduce the value of this adjustment,” Thomas said. “Seniors spend more on health care than any other segment of the population.”

“The COLA doesn’t take into account where you live or your actual spending patterns,” said William Arnone, CEO of the National Academy of Social Insurance. “For some people, it’s an overstatement of cost of living for, say, small towns in the Midwest versus urban areas like New York, D.C. or Chicago. With many older people choosing to live in suburban areas or rural areas, some will benefit more” than others from the same-sized increase.

Previous Increases

Since 2000, it’s averaged 2.3 percent as inflation remained remarkably tame through all kinds of economic swings. During some of the toughest years in that stretch, the bigger worry for the economy was actually that inflation was running too low.

Since the 2008 financial crisis, the U.S. government has announced zero increases to Social Security benefits three times because inflation was so weak.

Last October, the SSA announced a 5.9 percent increase, which itself was the largest in about four decades.

This year’s bump, however, is the largest increase since the SSA in 1981 announced an 11.2 percent increase, which had followed a 14.3 percent boost in 1980, data shows.

Smaller Payouts

The expected increase means the Social Security system will pay out more money sooner, which can add more strain on its trust fund.

The annual Social Security and Medicare trustees report released in June says the program’s trust fund will be unable to pay full benefits beginning in 2035.

The latest annual trustees report for Social Security said its trust funds that pay out retirement and survivors and disability benefits will be able to pay scheduled benefits on a timely basis until 2035. After that, incoming cash from taxes will be enough to pay 80 percent of scheduled benefits.

The Associated Press contributed to this report.