The Social Security Administration (SSA) announces the Cost of Living Adjustment (COLA) each year in October, which determines how much of a raise beneficiaries will receive the following year. The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and reflects the inflation rate over the past year.
For 2023, the COLA is expected to be announced in October 2022. While it’s impossible to predict the exact amount of the COLA until it’s announced by the SSA, there are some predictions based on the inflation rates for the previous year.
According to The Senior Citizens League, a non-profit organization that advocates for senior citizens, the COLA for 2023 could be as high as 6.1%. This would be the highest increase since 1983, when the COLA was 7.4%. However, the actual COLA amount could be lower depending on how much inflation occurred over the past year.
The COLA increase is important for Social Security beneficiaries because it determines how much their benefits will increase to keep up with the cost of living. Without a COLA increase, beneficiaries’ purchasing power could decline over time as the cost of goods and services increase.
What is Cost-of-Living?
Cost-of-Living refers to the amount of money required to maintain a certain standard of living in a particular geographic location. It takes into account the prices of goods and services that individuals need to purchase to maintain their daily lives, such as housing, food, transportation, healthcare, and other essential items.
The cost-of-living can vary significantly depending on the location and the standard of living. For example, the cost-of-living in a major city can be higher than that of a rural area due to higher housing and transportation costs. Additionally, a higher standard of living, such as access to luxury goods and services, can also increase the cost-of-living.
The cost-of-living is an important factor in determining the purchasing power of income, as it affects how far one’s income will go in a particular location. Cost-of-living indexes and calculators are often used to compare the cost-of-living between different locations or to determine the amount of income needed to maintain a certain standard of living.
Overall, the cost-of-living is an essential consideration for individuals and organizations when making financial decisions, such as determining salaries, setting prices, or deciding on relocation.
What is a Cost-of-Living Adjustment
A Cost-of-Living Adjustment (COLA) is an annual increase in the amount of money paid to retirees, disabled individuals, and their families who receive Social Security benefits. The COLA is designed to help offset the impact of inflation on these benefits.
The Social Security Administration (SSA) calculates the COLA based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the previous year to the third quarter of the current year. The CPI-W measures changes in the prices of goods and services, such as food, housing, transportation, and medical care, that people buy for day-to-day living.
If the CPI-W increases, then the COLA increases as well. However, if there is no increase or a decrease in the CPI-W, then there is no COLA. The purpose of the COLA is to ensure that Social Security benefits keep up with the cost of living, so beneficiaries can maintain their standard of living over time.
The COLA increase is applied to all Social Security beneficiaries, including retired workers, disabled workers, survivors of deceased workers, and dependents. It is also applied to Supplemental Security Income (SSI) benefits, which are paid to low-income individuals who are aged, blind, or disabled.
In conclusion, a Cost-of-Living Adjustment (COLA) is an annual increase in Social Security and Supplemental Security Income (SSI) benefits to help keep up with the cost of living. The COLA is based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) and is announced by the Social Security Administration each year.
Additional Social Security Changes for 2023
Here are some additional changes to Social Security that will take effect in 2023:
- Increased Taxable Earnings: The maximum amount of earnings subject to Social Security taxes will increase from $147,000 in 2022 to $151,000 in 2023. This means that workers earning over $151,000 will not have to pay Social Security taxes on any amount over that limit.
- Increased Earnings Limit for Beneficiaries: Social Security beneficiaries who are under full retirement age can earn up to $19,560 in 2023 without their benefits being reduced. This is an increase from the 2022 limit of $18,960. For beneficiaries who will reach full retirement age in 2023, the earnings limit is $50,520, up from $50,250 in 2022.
- Increased Full Retirement Age: For individuals born in 1961 or later, the full retirement age will increase from 67 to 67 years and 2 months in 2023. This means that individuals born in 1961 or later will have to wait until they are 67 years and 2 months old to receive their full Social Security retirement benefits.
- Increased Social Security Disability Thresholds: The substantial gainful activity (SGA) threshold for non-blind individuals will increase from $1,310 in 2022 to $1,360 in 2023. For blind individuals, the SGA threshold will increase from $2,190 in 2022 to $2,280 in 2023. These thresholds represent the amount of income that a person can earn while still qualifying for Social Security Disability benefits.
These changes to Social Security in 2023 are important to keep in mind for both workers and beneficiaries. They can affect how much you pay into Social Security, how much you can earn while receiving benefits, and when you can receive your full retirement benefits.
Living Expense Index
A Living Expense Index (LEI) is a tool used to measure the cost of living in a particular area or region. It is typically based on a basket of goods and services that are commonly consumed by households, such as housing, food, healthcare, transportation, and entertainment.
The LEI is calculated by comparing the cost of the basket of goods and services in a particular area to the cost of the same basket of goods and services in a reference area, which is usually the national average or a major metropolitan area. The result is a numerical index that reflects the relative cost of living in the area being compared to the reference area.
LEI data is used by businesses, government agencies, and individuals to make decisions about relocating, setting wages and salaries, and determining the allocation of resources. For example, businesses may use the LEI to determine the cost of doing business in a particular area, while government agencies may use it to determine the appropriate level of public assistance programs in a particular region.
LEI data is often provided by government agencies or private companies that specialize in data analysis and economic research. It is important to note that the LEI is just one measure of cost-of-living and may not capture the unique circumstances and needs of every individual or household.
Conclusion
while we won’t know the exact COLA amount for 2023 until October 2022, there are some predictions that it could be a significant increase. This would be good news for Social Security beneficiaries, who rely on these benefits to make ends meet. Stay tuned for the official announcement in October.