Many workers are used to getting a raise at the start of a new year. And seniors on Social Security often have the same experience.
Each year, Social Security benefits are subject to cost-of-living adjustments, or COLAs, the purpose of which is help make sure that benefits are able to keep pace with inflation. Many seniors get all or most of their retirement income from Social Security alone. So in order for those seniors to be able to maintain their standard of living as costs rise, they need a boost to their benefits.
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In 2022, Social Security benefits got a 5.9% COLA due to high levels of inflation. At the time, it was hailed as the most generous raise to arrive in decades.
But 2023's COLA is set to far outpace 2022's. So you may be in line for a nice boost to your monthly Social Security paycheck.
Your monthly income could climb substantially
In 2023, Social Security benefits will be eligible for an 8.7% COLA. That will take the average monthly benefit from $1,681 all the way up to $1,827. And if you want to know how much higher your first Social Security check will be in 2023, all you need to do is apply that 8.7% raise.
In most years, simply applying a COLA to your current benefit isn't enough to determine how much your payments will grow. That's because Medicare Part B hikes commonly eat into COLAs, leaving seniors on both Social Security and Medicare with less of a raise to look forward to.
But in 2023, for the first time in years, the cost of Medicare Part B is actually shrinking. So Social Security recipients don't have to worry about higher Medicare costs eroding the raise they're looking forward to.
How far will your boosted benefit actually go?
A higher monthly Social Security paycheck could do a lot for you financially. But whether you'll actually gain buying power as a result of next-year's raise will hinge largely on how inflation trends.
The whole reason 2023's COLA is so generous is that inflation levels have been high this year. If inflation starts to cool, seniors on Social Security might come out ahead financially. But if inflation picks up again, the opposite could happen -- beneficiaries could end up losing buying power, despite a very nice raise.
That's actually what happened in 2022. Though benefits got a 5.9% lift to start the year, the pace of inflation rendered that 5.9% COLA somewhat useless. So the hope is that seniors on Social Security won't be in for a repeat in 2023.
Make the most of that higher Social Security check
Regardless of how inflation trends, at the end of the day, your monthly Social Security benefit is set to go up a lot in 2023. And that's something you should do your best to take advantage of -- ideally, by sticking some of that extra money into savings so you have a cushion in case living costs start to soar even more.
