For months on end, seniors on Social Security were forced to sit back and wait for news of a 2023 cost-of-living adjustment, or COLA. At one point earlier this year, experts were calling for a COLA as high as 11%. But now that the final number is in, we know that an 11% COLA just wasn't in the cards.
Rather, Social Security recipients will see their benefits go up by 8.7% in 2023. That will take the average benefit among retired workers from $1,681 a month to $1,827. And because the cost of Medicare Part B, which is commonly paid directly out of Social Security benefits, is dropping, not rising, in 2023, seniors should get to keep their upcoming COLA in full.
But whether you're happy with an 8.7% COLA or not, the reality is that a raise that high is really a mixed bag. Here's why.
A good news/bad news situation
First, let's dig into the positive aspect of an 8.7% COLA. Social Security recipients are getting their largest raise in decades, and it could be enough to help them gain a bit of buying power at a time when living costs are so unbelievably high.
The bad news, however, is that inflation could continue to surge in 2023. And if that scenario comes to be, seniors on Social Security may not gain any buying power at all. Quite the contrary -- they might lose buying power if the rate of inflation outpaces the COLA they're in for.
That's precisely what happened to Social Security recipients this year. At the start of 2022, benefits got a 5.9% lift. At the time, that COLA was seniors' largest in decades.
But then the rate of inflation jumped so much that it left that 5.9% COLA in the dust. It also left seniors who get the bulk of their retirement income from Social Security cash-strapped and stressed. And the fear is that a similar scenario could arise in 2023.
Should you celebrate or not?
If you're on Social Security, you may be happy about your upcoming COLA. Or you may be disappointed that it isn't a higher number.
Either way, your goal should be to make the most of that COLA and jump at the chance to bank some savings if the pace of inflation does indeed slow down. At the same time, it's important to recognize that living costs are likely to stay high at least in the near term. They may start to drop gradually in the course of the coming year, but given where inflation is right now, the cost of everyday expenses is likely to remain elevated.
If you have an opportunity to boost your income -- perhaps by taking on a part-time job or renting out a portion of your home -- then it pays to take advantage, even with that 8.7% COLA coming your way. That raise may or may not do a good job of increasing your buying power. But if you take matters into your own hands, you can make 2023 the year you secure your retirement finances and build yourself a savings cushion to fall back on as needed.