Around 66 million Americans receive monthly Social Security checks. If you're one of them, you're probably eagerly -- and perhaps even anxiously -- waiting to find out how much your check will go up in 2023.
An old adage says, "Hope for the best, but prepare for the worst." What is the worst outlook for the upcoming cost-of-living adjustment (COLA)? Here's the lowest your Social Security increase will likely be.
Let's first take a look at how low your Social Security increase could possibly be. That answer is easy: zero.
Prior to 1975, it literally took an act of Congress to boost Social Security benefits. Since 1975, though, COLAs have been determined on an annual basis to help offset the impact of inflation. During these 47 years, there was no increase three times. The most recent year of a zero COLA was 2015.
Could Social Security recipients really forego an increase in 2023 after the soaring inflation experienced this year? In theory, yes.
For it to happen, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for September would have to fall enough to make the average of the inflation metric for Q3 of 2022 equal to or lower than the average for Q3 in 2021. Specifically, the CPI-W would need to plunge by nearly 24.8% from August to September.
There are two things to note, though. First, the biggest one-month CPI-W decline since 1975 occurred in November 2008 and was only 2.3%. That's less than one-tenth the size of what would be required for no increase to Social Security benefits next year. Second, all we have to do is look around to see that prices in general haven't declined nearly that much since August.
To put it succinctly (albeit with poor grammar), a zero Social Security COLA ain't going to happen. So what's the probable lowest increase that could be in store?
We could plug in the historical largest one-month CPI-W decline of 2.3% into the COLA calculation method used by the Social Security Administration (SSA). That would give Social Security recipients an increase of nearly 7.9%.
However, no one is predicting a COLA that low. A more realistic scenario would be for the CPI-W in September to decline at a slightly faster rate than it has been sliding over the past two months.
In July, the CPI-W was 0.1% lower than the level in June. In August, the inflation metric slipped 0.2% below the level in July. If we assume that the September CPI-W follows this trend, it would decline by 0.3% sequentially. That would translate to a COLA for 2023 of around 8.6%.
Even if inflation falls at a rate 2x faster than this trend, your Social Security increase for next year would be 8.5%. It stands to reason that a COLA in the ballpark of 8.5% to 8.6% would be the lowest likely increase. That's not much below the 8.7% Social Security increase that many experts predict.
When you'll know for sure
The good news is that you won't have to wait very long to know for sure what the 2023 Social Security COLA will be. SSA plans to announce the benefits increase in mid-October.
It's likely that the announcement will come on Oct. 13, 2022. That's the day that the Bureau of Labor Statistics is scheduled to reveal inflation data for September, including the CPI-W. Whatever the exact amount of the increase is, it will almost certainly be the biggest COLA in more than 40 years.