Social Security Benefits Will Rise 8.7% in 2023, but That’s Not Nearly the Highest COLA on Record
For much of the summer of 2022, there was one big question on seniors’ minds: What would their 2023 Social Security cost-of-living adjustment (COLA) look like?
On October 13, they got their answer. The Social Security Administration announced an 8.7% COLA, which has been hailed as the program’s largest raise in decades, many times over.
While an 8.7% COLA might seem significant, it’s actually not the largest Social Security raise to ever be given out. In fact, the largest raise since COLAs were implemented in 1975 far surpassed the 8.7% mark.
It’s not the first time inflation has been high
Over the past year and change, working Americans and seniors alike have had to grapple with rampant inflation. And that was jarring, considering that the rate of inflation largely held steady for many years prior to 2021.
In fact, one major complaint among Social Security beneficiaries in the years prior to 2022 was that their COLAs were notably stingy. But there’s a reason for that — inflation didn’t warrant larger boosts. By contrast, at one point earlier this year, inflation was soaring to such a degree that some experts were calling for a 2023 COLA as high as 11%.
But let’s get back to that 8.7% COLA. Compared to the 5.9% COLA seniors received going into 2022, it’s huge. And it’s certainly far more generous than the 1.3% COLA Social Security recipients got the year before.
Let’s be clear, however — an 8.7% raise is not the highest on record since COLAs became an automatic thing. In 1979, the Social Security Administration announced a 9.9% COLA. That was followed by a 14.3% COLA the year after and an 11.2% COLA the year after that.
Don’t sweat a “smaller” COLA for 2023
Some seniors on Social Security may be disappointed in the fact that next-year’s COLA is “only” going to amount to 8.7%. But actually, higher COLAs aren’t necessarily a good thing because they’re tied directly to inflation. A lower COLA than some experts were calling for is an indication that inflation didn’t get as bad as some had expected.
Let’s also try to put annual COLAs into perspective. Their purpose is to help seniors maintain buying power in the face of inflation. Over the past couple of decades, they’ve largely failed in that regard. And the only way next-year’s 8.7% COLA is going to have a positive impact on seniors is if the rate of inflation slows down.
If the pace of inflation slows to, say, 5% or 6% by midyear, then yes, Social Security recipients might finally land in a position where their COLAs do the trick of helping them shore up their finances. But considering that recent steps taken to cool inflation — think rate hikes on the part of the Federal Reserve — haven’t worked thus far, we shouldn’t bank on a much lower rate of inflation in 2023. And it won’t end up being shocking if rampant inflation continues, fueling a COLA for 2024 that’s larger than 8.7%.
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