Nothing's been finalized yet, but 2023 seems poised to bring Social Security's biggest increase in over 40 years. This is a big deal for the millions of Americans who count upon Social Security to help them cover their expenses. But there are still a lot of misconceptions about this impending benefit boost. Here are three things all Social Security recipients ought to know about it.
1. You don't have to do anything to claim it
Social Security checks are projected to go up because of the cost-of-living adjustments (COLAs) the Social Security Administration makes every year. There's nothing recipients need to do in order to claim these larger checks. Beginning in January 2023, you'll automatically start getting more from the program.
2. It's just to help your savings keep up with inflation
The annual COLAs are designed to help Social Security benefits keep pace with inflation. If Social Security benefits remained stagnant over time, their buying power would decrease. You'd have to spend more dollars in the future to afford the same lifestyle you have now because inflation is going to continue to raise the cost of living. The COLAs keep your buying power more or less the same over time.
The reason the 2023 COLA is expected to be so large is because inflation has been so high this year. With the cost of goods rising rapidly, Social Security needs to see a pretty big increase in order to keep up. So while extra money is always nice, your 2023 Social Security checks probably aren't going to radically change your lifestyle.
3. Your checks will increase by a certain percentage of your current monthly benefit
Social Security COLAs are a percentage of your current checks, not a certain dollar value. This helps make the increase fair to everyone. It also means the increase you get might be different from your spouse's or neighbor's increase.
The official Social Security COLA for 2023 will be announced in October. It's based on third-quarter inflation data, and the third quarter doesn't end until September 30th. When that happens, the Social Security Administration will look at how much higher the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is during the third quarter of 2022 compared to the third quarter of 2021. The percentage increase then becomes the 2023 annual COLA.
No one can say for sure what that will be at this point because all the data necessary for the calculation isn't in yet. But an estimate by the Committee for a Responsible Federal Budget (CRFB) puts the 2023 COLA as high as 10.8%. For the current average monthly Social Security check of $1,623, that would add an extra $175 per month.
For now we can only speculate, but it's pretty safe to say your Social Security checks are going to look a lot different next year. In practice, though, things aren't going to change very much. So don't plan any big expenses for 2023. Or if you are planning some, don't expect Social Security to help you out much.