Social Security can provide great supplemental income in retirement for some, but it's the primary source for many others. Among its beneficiaries, 12% of men and 15% of women rely on it for more than 90% of their income.

So it's important to make sure the purchasing power of someone's benefits isn't decreasing because of inflation. During normal times, that's around 2% annually; otherwise, it could be the 8.5% inflation rate as of July.

To help with this, Social Security has a cost-of-living adjustment (COLA). It increases monthly benefits based on the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the previous year. So the COLA in 2023 will be based on the increase in the 2022 third-quarter CPI-W.

With inflation at levels that we haven't witnessed in several decades, it's expected that the 2023 COLA will be the largest since 1981.

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The 2023 COLA is expected to be huge

We won't know the exact COLA until October, but it's safe to assume it won't be any lower than 8%. For perspective, in the past 20 years, the only times the COLA has been over 4% was in 2009 during the Great Recession (5.8%), and this year as we unwind from the peak of the pandemic (5.9%).

If we take the conservative route and assume an 8% increase, the average monthly Social Security retirement check will go from $1,669 to $1,802. The maximum benefit for people claiming early at 62 will be $2,553, the maximum at full retirement age will be $3,612, and the maximum for delaying until 70 will be $4,529.

And although any increase helps, especially for someone who relies primarily on Social Security, unfortunately it could have some unintended negative consequences.

It could make you ineligible for other programs

Tens of millions of people rely on low-income assistance programs across the country. Whether it's the Supplemental Nutrition Assistance Program (SNAP); the Women, Infants, and Children (WIC) program; Medicaid, or Head Start, many serve the vital needs of those most vulnerable.

But these programs are designed to assist low-income individuals, so there are income limits for eligibility. For example, in California, the most income a household of two people can make to qualify for Medi-Cal (its Medicaid program) is $25,268.

With a large COLA increase, some people could become ineligible for certain services or enter the phaseout zone where benefits will be reduced. It's a double whammy: The COLA itself likely won't be enough to account for the hit that bank accounts have taken from inflation, and an increase in monthly benefits could cut off access to other programs.

Consider a situation where you begin taking Social Security benefits early, at 62. Since you're not eligible for Medicare until 65, you might rely on Medicaid to fill in those gap years. If the COLA increase somehow pushes you over the eligibility limit (which varies by state), that could leave you with a gap in health insurance coverage during a time when you'll likely be needing it the most.

A COLA increase isn't inherently bad by any means, but it's important to see the full picture so we can begin fixing such situations, however that may be.