What's behind the big Social Security cost-of-living bump 

Social Security recipients will be getting their biggest raise in decades to help keep pace with inflation.

Mary Johnson, who has been tracking the annual cost-of-living adjustment (COLA) for 28 years as Social Security and Medicare policy analyst at The Senior Citizens League, a nonpartisan advocacy group based in Alexandria, Virginia, provided details:

On Thursday, the SSA announced the size of the increase. The release coincides with publication of consumer price data for September. The third-quarter inflation figure (for July, August and September) is then compared to the figure from the third quarter of 2021 to formulate the increase.

Social Security recipients will get an 8.7% increase in 2023, the agency said. The COLA also covers recipients of Supplemental Social Security, designed to help aged, blind, and disabled people with little or no income. For the average Social Security recipient currently getting retirement benefits of $1,660 per month, an 8.7% increase amounts to an additional $144.40. Those receiving the maximum monthly benefit — $3,345 for those who started receiving payments at full retirement age — would get an additional $291. 

In their January check or direct deposit.

We can't say how adequate it will be until we know how hot inflation is running in 2023, Johnson said.

It is the largest in dollar terms because benefits have grown over the years, but in the inflationary period of 1979 to 1981, the percentage increases were even higher. In 1980, for instance, the COLA was a whopping 14.3%. 

The SSA uses a subset of the CPI data known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

In 1973, Congress amended the Social Security act to include automatic annual inflation adjustments. The CPI-W was chosen as the benchmark.

This CPI-W doesn't reflect spending patterns of older, retired adults, according to advocates for senior citizens, who are calling for a more appropriate index. The CPI-W mirrors the spending of younger, working adults, not retirees. For instance, it assumes 7% of spending goes to health care, when studies indicate that older adults devote from 25% to 33% of their incomes to health care, Johnson said.

Yes.

Seventy million people received benefits, according to the Social Security Administration.

Retirees' charges for Medicare Part B are typically subtracted directly from Social Security benefits. Though Medicare charges typically rise year to year, the standard monthly Part B premium will be going down by $5.20 to $164.90 in 2023. "This is what makes this such an unusual year," Johnson said.

It could erode program financing and advance insolvency estimates, Johnson said. Forecasts call for Social Security to run out of money in 2035 based on a COLA of 3%. A recession and an attendant decline in payroll taxes also would put a dent in Social Security financing.

The benefit is not reduced, but in periods of recession, such as 2010 and 2011, there was a zero COLA.

By Ken Schachter

kenneth.schachter@newsday.comkschach

Ken Schachter covers corporate news, including technology and aerospace, and other business topics for Newsday. He has also worked at The Miami Herald and The Jerusalem Post.