Inflation is not just a United States thing. The increase in prices is a global thing. Lucklily, in America there is the COLA so that Social Security also goes up a bit along with prices. Thanks to the COLA, benefit recipients are able to retain good purchasing power, even though the increase is not always sufficient. The calculation, as we will see below, can be a bit outdated at times. Still, it is always good news that the Social Security Administration can increase its payments.
The COLA calculation is made from a series of accounts where inflation and price increases matter a lot. The idea behind cost-of-life-adjustment is precisely that retirees can directly face that inflation and price increase. So the two concepts are totally linked. And the type of benefit you receive doesn’t matter, since the COLA also increases SSI, disability benefits and all the rest from Social Security.
How does the Social Security COLA work?
To adjust the Social Security COLA the first thing the Administration does is look at inflation for the months of July, August and September. The CPI-W is the exact data that the SSA uses to then choose the increase in benefits. With the increase in prices in these summer months, the SSA declares the increase in the month of October.
The biggest problem the Social Security Administration faces with this decision is that prices can go up. If the CPI-W increases, for example, by 6% on average in July, August and September, the SSA only takes this information into account. In October, November and December the CPI-W can also go up, so this increase is somewhat obsolete.
COLA in 2023
There is still no exact figure on how much the COLA will increase by 2023. But it will, most likely, break a record. The League of Seniors estimates that this increase will reach 10% and even exceed that figure. This will be a historic increase in the increase in Social Security benefits. And this increase is not so that recipients will have more money to spend every month, but so that they can pay monthly expenses without the need for another source of income.
Also, to receive the COLA you don’t have to do anything, as it is done automatically and added to your current benefit. Knowing all this, we can only wait until finally the Social Security Administration announces the total increase in retirement, widow’s and all other benefits.