Seniors and millions of other Social Security recipients in the U.S. will soon get their biggest benefit hike since 1981, with the pension program set to deliver an 8.7% cost-of-living increase in 2023.
The annual cost-of-living adjustment, or COLA takes effect with the December benefits, but those payments will be made in January 2023, according to the Social Security Administration. With the increase, the average benefit check will rise more than $140 to $1,827 a month, compared with the typical benefit of $1,681 in 2022.
The Social Security Administration adjusts payments annually based on the inflation rate, which this year has spiked to its highest levels in four decades. Seniors lost purchasing power during this year since the 5.9% they received in 2022 is well below this year’s rise in prices. About 4 in 10 seniors said they drained their emergency savings to stay afloat this year, according to an October survey by the advocacy group the Senior Citizens League.
“Anytime they go through a loss of buying power, that means they are exhausting other retirement resources, like savings, or may be putting more on credit cards or they might turn to safety net programs,” said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League.
She added, “We have just been through a period where retirees are trying to cope and manage, and they have never been through anything like this before.”
The 8.7% COLA adjustment for 2023 will help seniors who have struggled with surging costs for everything from food to gasoline, but it may take some of them a while to rebuild their emergency savings or get back on solid financial ground, she noted.
2023 Social Security benefits: Payment dates
The January check next year will be based on recipients’ birth dates, according to the Social Security Administration.
- For people whose birthday falls between the 1st to 10th of the month, their payments arrive on the second Wednesday of the month. That means the first check with the 2023 COLA will land on January 11.
- Those with birthdays that fall between January 11 and January 20 will have their payments deposited or mailed on the third Wednesday of each month. Their first check with the enhanced COLA will arrive on January 18.
- If a recipient’s birthday falls between the 21st and 31st, their payments are scheduled for the fourth Wednesday of each month. Their first 2023 COLA will arrive on January 25.
Impact of taxes, Medicare premiums
While the COLA increase will be a welcome boost for Social Security’s roughly 70 million recipients, there are some implications to be aware of, Johnson noted.
The benefits hike could result in higher taxes for some recipients, for instance. Single taxpayers who receive more than $25,000 in retirement income need to pay taxes, while the threshold kicks in at $32,000 for married couples, according to the Social Security Administration.
The average Social Security benefit for 2023 will be below that amount, almost reaching $22,000 per single recipient next year. However, many seniors also have other sources of retirement income that could push them above the taxation threshold, especially after accounting for the 8.7% boost from their monthly benefit checks.
Of course, taxes are dependent on a number of variables, including the standard deduction, which is increasing in 2023 to reflect inflation, and every person’s tax situation will vary.
Another issue that seniors should be aware of is the impact of their higher Social Security benefits on Medicare premiums, Johnson said. This is mostly an issue that will impact higher-income seniors, since Medicare premiums work on a sliding scale based on income.
Seniors who are single and have income of less than $97,000 annually, along with those who are married with income below $194,000 will pay the standard Medicare premium of $164.90. But seniors who earn over those thresholds will pay higher Medicare premiums, ranging from about $230 to $560 a month.
“The final idea to keep in mind is that their income has increased by the COLA, and it is a permanent bump for Social Security income,” Johnson said. “They will need to plan on a longer-term basis for the most tax-efficient strategies for taking their retirement income and other decisions.”