Nearly 66 million Americans received Social Security benefits in July, and more than half of retired workers say those monthly checks represent a significant source of income, according to a Gallup poll. Unfortunately, rapidly rising prices this year have meant those monthly checks don't cover nearly the amount of expenses that they used to cover.

A whirlwind of macroeconomic factors sent inflation soaring as high as 9.1% (when annualized) through the first seven months of 2022, meaning the 5.9% cost-of-living adjustment (COLA) implemented for 2022 has failed to cover rising costs for Social Security recipients. In fact, the average benefit has fallen short by about $58 per month, or $374 year-to-date, according to The Senior Citizens League.

Fortunately, the Social Security Administration (SSA) uses fresh data to recalculate the COLA every year. That information will be published next month, along with other important figures like the retirement earnings limit, which makes October the most critical month of the year for seniors on Social Security.

Here's what you should expect.

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A huge cost-of-living adjustment is coming

COLAs are intended to preserve the buying power of Social Security by boosting the monthly payout at a pace equal to the inflation rate. Well, inflation hit a 40-year high on multiple occasions this year, which means the COLA in 2023 is on pace to be the largest adjustment in the last four decades.

In fact, The Senior Citizens League estimates the 2023 COLA will clock in at 9.6%, though that figure could drop to 9.3% if inflation slows, or it could rise to 10.1% if inflation accelerates in the next few months. In the event of a 9.6% COLA, the average retiree would receive an extra $160 per month next year.

That said, those figures are just estimates. COLAs are calculated based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from one year to the next. Specifically, the CPI-W from the third quarter (July through September) of the current year is divided by the CPI-W from the third quarter of the prior year. The increase (if any) becomes the COLA for the following year. That means the official COLA cannot be calculated until CPI-W data is available for August and September.

As a caveat, seniors should avoid viewing the COLA as a raise. Food and energy prices have risen dramatically this year, and the standard Medicare Part B premium jumped 14.5%. Even if inflation falls to zero next year -- a highly unlikely scenario -- the COLA in 2023 will merely reimburse seniors for the extra money they had to shell out in 2022.

An increase in the retirement earnings limit

Another metric that will matter to some seniors is the retirement earnings limit, also called the retirement earnings test exempt amount. While it is possible to work while receiving Social Security, individuals that claim retirement benefits before their full retirement age (FRA) can see their monthly payouts reduced if the income they earn in a year exceeds a certain threshold.

The earnings limit for individuals who are under their FRA rose 3.2% to $19,560 in 2022. If income exceeds that threshold, $1 in benefits is withheld for every $2 in earnings above the limit. For example, an individual who is under their FRA and who makes $24,560 (i.e. $5,000 over the limit) will see their benefit reduced by $2,500 over the course of the year. Once they reach FRA, they can collect full Social Security benefits no matter their income.

Like COLAs, the official earnings limit will not be published until mid-October. That said, the limit has increased at an annualized pace of 2.8% over the last 20 years, so the new earnings limit figure will probably land somewhere between $20,080 and $20,180.