If you're collecting Social Security, you could receive hundreds of dollars more per month starting in 2023. Most years, Social Security beneficiaries will receive a higher benefit amount to account for cost-of-living adjustments, or COLAs. Usually, the COLA will fall around 2% to 3% per year. This year, though, seniors saw an enormous 5.9% COLA to account for surging inflation in late 2021.
Because inflation has been even higher in 2022, there's a good chance next-year's COLA will be massive. As a result, the average retiree could see their benefits increase by a whopping $2,162 per year. Here's what to expect.
How much will your benefits increase?
Nobody knows for certain what next-year's COLA will be, as it will depend on what happens with inflation throughout the rest of 2022. But it could be as high as 10.8%, according to the latest estimates from the Committee for a Responsible Federal Budget, a nonprofit, nonpartisan group that focuses on U.S. fiscal policy.
As of May 2022, the average retiree collects around $1,668 per month from Social Security. A 10.8% increase would amount to roughly $180 per month, or $2,162 per year.
It's unclear whether beneficiaries will actually receive a raise of nearly 11% in 2023, because there's a chance that inflation will slow down throughout the rest of the year. That said, even if next-year's COLA is lower than expected, it will still likely be one of the largest in decades.
Why this may not be a good thing
To be clear, COLAs themselves are not necessarily a bad thing. With rising inflation, many seniors are desperately in need of larger payments to afford increasing costs.
However, a large COLA simply means that inflation is also high. In other words, this adjustment is merely designed to help your benefits maintain buying power, not increase your buying power.
Also, even with a larger-than-average bump in benefits, Social Security has historically done a poor job at keeping up with inflation. In fact, since 2000, Social Security benefits have actually lost around 40% of their purchasing power, according to research from nonprofit group The Senior Citizens League.
What does that mean for you? In short, it means that, while next-year's COLA can make it easier to afford everyday necessities, it won't necessarily provide you with more discretionary income.
What to expect in 2023
Nobody knows the specifics of what next-year's COLA will look like, but seniors can expect a hefty raise in 2023. Just keep in mind that that money may not go as far as you think.
While the COLA can help make ends meet while inflation surges, it's wise to keep your expectations in check. When you have a better understanding of what to expect with next-year's COLA, you can adjust your spending accordingly and be as prepared as possible.