The consumer price index data for August, released Tuesday, shows 8.3% inflation over the past 12 months before a seasonal adjustment and was 0.1% from July to August on a seasonally adjusted basis. In July, prices rose by 8.5% over 12 months and were unchanged from June.
Based on the new data through August, The Senior Citizens League estimates the Social Security cost-of-living adjustment, or COLA, for 2023 could be 8.7%, lower than the 9.6% it predicted last month.
An 8.7% COLA would be the biggest increase since 1981. The adjustment would increase the average retiree benefit of $1,656 by $144.10, according to the league.
When Will the 2023 Social Security COLA Be Announced?
There is only one month of consumer price data left before the Social Security Administration announces the COLA for 2023. The Senior Citizens League expects the SSA to announce it on Oct. 13, after the release of the September consumer price index data.
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.
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.
“A COLA of 8.7% is extremely rare and would be the highest ever received by most Social Security beneficiaries alive today. There were only three other times since the start of automatic adjustments that it was higher (1979-1981),” she said via email.
“COLAs are intended to help maintain the buying power of Social Security benefits when prices rise. They are a permanent increase that will gradually boost the total Social Security income that individuals will receive over the course of their retirement. 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,” said Johnson.
“Based on inflation through August, we calculate that the COLA for August 2023 has fallen short on average by 48%,” she added. “A $1,656 benefit is short about $43.80 per month on average and by a total of $417.60 year to date.”
A Tax Concern
While Social Security COLAs are designed to offer financial relief, they can also result in a higher tax bill.
About 59% of participants in The Senior Citizens League’s 2022 Retirement Survey believe they could be at risk of a higher tax liability for 2022 due to the 5.9% COLA they received this year, according to early results.