What Was the Cost of Living Increase for 2023?

A Cost of Living Adjustment (COLA) represents an increase in various benefits, primarily designed to help maintain the purchasing power of fixed incomes. Its fundamental purpose is to counteract the effects of inflation, ensuring that the financial support individuals receive can still afford a comparable standard of living as prices for goods and services rise. This adjustment plays a significant role in helping beneficiaries keep pace with economic changes over time.

The 2023 Cost of Living Adjustment

The Cost of Living Adjustment for 2023 was set at 8.7 percent. This percentage was determined by comparing inflation data from specific periods. The Social Security Administration (SSA) uses a particular measure of inflation for this calculation.

The official measure employed for COLA calculations is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This index, compiled by the Bureau of Labor Statistics, tracks changes in consumer prices for a basket of goods and services purchased by hourly and clerical workers.

For the 2023 COLA, the 8.7 percent increase reflected the rise in the CPI-W from the third quarter of 2021 through the third quarter of 2022. The methodology dictates comparing the average CPI-W for the third quarter of the prior year, when a COLA became effective, to the third quarter of the current year.

Automatic annual COLAs have been in effect since 1975, following legislative changes in 1972 that tied these adjustments to the CPI-W. This consistent application of the CPI-W ensures a standardized approach to adjusting benefits for inflation.

Impact on Social Security and Other Benefits

The 8.7 percent COLA for 2023 had a direct effect on Social Security benefits. For instance, the average monthly Social Security benefit for a retired worker increased from $1,681 to $1,827 in January 2023. Spousal benefits, along with survivor and disability benefits, also saw increases.

Beyond direct benefit payments, the 2023 COLA influenced other financial aspects related to Social Security. The maximum amount of earnings subject to Social Security tax, known as the taxable maximum, increased to $160,200 for 2023. This was an increase from $147,000 in 2022, though the Social Security tax rate itself remained at 6.2 percent for employees.

Medicare Part B premiums also experienced changes in 2023. The standard monthly premium for Medicare Part B enrollees decreased to $164.90. Additionally, the annual deductible for all Medicare Part B beneficiaries was $226.

Various other government benefits and programs are adjusted based on COLA. These include Federal Retirement Benefits, such as those for the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS). The Supplemental Nutrition Assistance Program (SNAP) also utilizes COLA to adjust benefits. Some state pension benefits may also see adjustments tied to COLA.