Here’s what you need to know about this week’s Social Security COLA hike
Story at a glance
Around a quarter of the U.S. population — the majority of whom are retirees — receives Social Security benefits.
A large cost-of-living adjustment, based on September’s inflation figures, is expected to be announced Thursday.
Not all recipients will receive equal benefits from the adjustment.
The Social Security Administration is expected to announce its largest cost-of-living adjustment (COLA) to Social Security in four decades on Thursday, a move that could leave people living on the program with more income to deal with inflation.
It is expected that the hike will be 8.7 percent, a boost to the more than 70 million Americans benefitting from the program.
Retirees, widowers, those who are disabled and others will all see the increase reflected in their 2023 benefits.
On average, retirees now receive a monthly benefit of $1,656. The new COLA adjustment would increase that total by $144.10, according to the Senior Citizens League, a bipartisan advocacy group.
Beneficiaries can estimate their own increases by multiplying their gross benefit amount by 0.087.
Around 25 percent of Americans receive Social Security, and 1 in 5 U.S. household budgets will be affected by the COLA spike, meaning it could have a significant impact on the economy as a whole.
And for people depending on Social Security every month, it will especially be important. One-quarter of American seniors rely on their monthly social security payment for all or the majority of their earnings.
The boost comes as inflation squeezes Americans’ budgets, affecting costs of holiday travel and groceries alike.
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A COLA boost of 8.7 percent is very rare and will likely be the largest increase ever received by most beneficiaries alive today.
Historically, increases rose above 8.7 percent only three times. All of those hikes were decades ago — between 1979 and 1981 — which was also a time of high inflation.
Annual automatic COLAs were first introduced in 1975.
The adjustments are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, while the 8.7 percent figure was estimated based on August figures. The estimate is smaller than a previous forecast of 9.6 percent.
COLAs also reflect the index’s increases from the third quarter of the previous year and applied to the corresponding quarter of the current year in which the COLA became effective, according to the Social Security Administration.
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Annual increases help ensure beneficiaries maintain buying power when inflation causes prices to spike. They are also permanent and will gradually increase incomes throughout individuals’ retirement years.
But whether an extra $144.10 each month translates into greater purchasing power remains to be seen, as a large proportion of older individuals’ benefits goes toward paying for health care and housing— two sectors that have seen costs spike.
The National Council on Aging estimates more than 15 million U.S. adults aged 65 or older are economically insecure and have incomes below 200 percent of the federal poverty level.
Inflation rates and housing costs can also vary depending on where you live, and not every beneficiary will receive equal benefits from the COLA.
“Without a COLA that adequately keeps pace with inflation, Social Security benefits purchase less and less over time, and that can create hardships especially as older Americans live longer lives in retirement,” a September Senior Citizens League statement reads.
The large COLA might also put some retirees over an income threshold that requires them to pay income taxes on part of their benefit. Single filers who have a combined income equal to or below $25,000 pay no taxes on their benefits. For joint filers, that threshold is $32,000.
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