We're probably less than two weeks away from knowing how much higher Social Security checks will be in 2023. The Social Security Administration (SSA) plans to make the announcement in mid-October.

There have been lots of predictions made in recent months about what the next cost-of-living adjustment (COLA) will be. The most optimistic of these estimates will almost certainly be proven wrong. It's obvious now that an 11% Social Security increase is practically impossible. But that's OK.

Two people looking at documents in front of a laptop.

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Against the odds

The SSA will use six numbers to calculate the Social Security COLA for 2023. The agency first determines the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the three months in the third quarter of 2021. It then calculates the average for Q3 of this year using the CPI-W figures for July, August, and September.

Five of those six numbers are already known. The Bureau of Labor Statistics plans to announce the CPI-W for September on Oct. 13, 2022. If the average for Q3 2022 is higher than the average for Q3 2021 (which is all but guaranteed), the percentage increase will be the COLA for next year.

An 11% Social Security increase is mathematically possible. However, the odds are heavily against a COLA that high. The CPI-W in September would have to spike a lot more than the greatest one-month increase ever. 

Such a historically high jump seems especially unlikely considering Americans' sentiment. U.S. consumers' expectations of inflation over the near term in September slid to the lowest level in the past year, according to a University of Michigan survey. This improved outlook is largely the result of lower gasoline prices.

Don't worry, be happy?

Even though an 11% increase isn't probable, Social Security recipients should still be in store for the highest COLA in more than 40 years. It's likely that benefits will increase in the ballpark of 8.7%. That would be the fourth biggest COLA since 1975.

In one important way, a lower-than-expected COLA would actually be good news. The projected Social Security increase of 8.7% is lower than the earlier estimates of close to 11% because inflation (as measured by the CPI-W) moderated somewhat.

The only way the Social Security increase will be less than 8.7% is if inflation fell in September. Practically speaking, that would be a reason to celebrate.

Why? Social Security recipients won't get their "raise" until January. However, they'll have to pay for goods and services for several more months before the COLA bump hits their Social Security checks. Lower inflation would mean less of a financial burden in the meantime.

No. 1 enemy

Legendary investor Warren Buffett once stated, "Inflation swindles almost everybody." He was right. And inflation is especially the No. 1 enemy of many Social Security recipients.

COLAs help protect against the erosion of Social Security benefits, but they're not perfect. Ideally, inflation will return to its low levels of recent years and give Social Security recipients greater buying power.

This just might happen. The Federal Reserve remains committed to fighting inflation by raising interest rates. Investors appear to be optimistic that inflation will decline based on the relatively small gap between the yields of the one-year Treasury Inflation-Protected Securities (TIPS) and one-year Treasury bills. (The lower the difference in these yields, the lower expectations are for future inflation.) 

If the upcoming Social Security COLA is lower than expected, that really is OK. It will mean that the top enemy of retirees and other Social Security recipients is losing the battle.