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Retirement Planning > Social Security

2023 Social Security COLA Estimate Rises to 8.9% as Inflation Climbs

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What You Need to Know

  • Overall, prices rose 8.5% in March from a year earlier, according to CPI data released Tuesday.
  • Annual COLAs are based on inflation in the third quarter; Social Security recipients got a 5.9% raise for 2022.
  • The average Social Security recipient has lost $162.60 in purchasing power so far in 2023, according to Mary Johnson of The Senior Citizens League.

Tuesday’s consumer price index release shows that prices over the past 12 months through March have risen by 8.5% — the largest 12-month increase since January 1982 and 1.2% from February to March. This estimate includes some of the price jumps, especially in energy, due to Russia’s invasion of Ukraine.

Based on this data, the Senior Citizens League estimates the Social Security cost-of-living adjustment, or COLA, for 2023 could be 8.9%. This would be the biggest COLA since 1981.

Mary Johnson, the league’s Social Security and Medicare policy analyst, bases monthly COLA estimates on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as the CPI-W. In February, the league pegged the 2023 COLA at 7.6%.

The Social Security Administration uses average inflation in the third quarter, based on the CPI-W, to calculate the benefit adjustment for the following year. The COLA was 5.9% in 2022.

David Kelly, chief global strategist of J.P. Morgan Asset Management, stated in a report Monday that while “surging energy prices due to Ukraine” are a big driver of rising prices, “broader inflation pressures are building.”

His forecast: “Strong gains in wages, rents and inflation expectations should keep inflation stubbornly high with core consumption deflator inflation averaging 4.0% year-over-year by the fourth quarter of 2022.”

The biggest price increases were in gasoline, shelter and food. Gasoline rose 18.3% in March,  which “accounted for over half of the all items monthly increase,” according to the U.S. Bureau of Labor Statistics. The food index rose 1%, and the shelter index rose 0.5%.

The index less food and energy rose 0.3% in March, following a 0.5% increase the prior month. For the past 12 months, items less food and energy index rose 6.5%, the largest 12-month change since August 1982, according to the Bureau.

Effect on Retirees

The rise in inflation especially hurts those who are on fixed incomes, Johnson noted. Although prices on goods and services used heavily by older adults, such as medical care, haven’t increased as dramatically as energy prices (2.9% in medical care services vs. 48% in gasoline over the last 12 months), retirees are faced with increases in food (8.8%), electricity (11.1%) and transportation services (7.7%).

Johnson said that because the CPI-W is so “sensitive” to energy prices, currently it provides bigger increases than would the the CPI-E, which “more accurately reflects spending patterns for older Americans,” Johnson says.

Johnson noted that due to inflation, the average Social Security recipient has lost $162.60 in purchasing power so far in 2023.

Also, she pointed out that March 2021 was when inflation became “a 10-alarm fire,” so going forward, the annual rate of inflation will slow, though prices will likely continue to rise.

Cutting Costs

Seniors should focus on reducing expenses like prescription drug costs, Johnson said, suggesting they use pharmacy coupons from GoodRX and ask doctors for less expensive alternatives.

Also, some drug companies offer patient assistance, and the Area Agencies on Aging can steer older adults to local programs that can help with costs, she says.

“Housing has us worried because people are saying they can’t find affordable housing; a lot of them are on wait lists,” she said. Local housing authorities can be helpful in applying for assistance, she added.