2023 Will Bring Historic Changes for Retirees on Social Security

• Most years, seniors will receive a cost-of-living adjustment (COLA).
• The higher inflation surges, the bigger next year's Social Security raise will be.
• Whether you're already retired or planning to retire soon, this COLA could affect you.

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It's getting harder for retirees on a fixed income to make ends meet as inflation continues to surge, but Social Security can go a long way towards making retirement more affordable.

Relief may be on the way. The cost-of-living adjustment will be announced next month. Social Security is trying to maintain its purchasing power by increasing benefits.

Retirees will get a small increase in benefits most years. Next year's adjustment will be historic and beneficiaries can expect a large raise.

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What will the COLA for 2023 be?

The SSA will wait until September's inflation data is released to make its announcement on the official COLA.

According to the latest consumer price index (CPI) data from the Bureau of Labor Statistics, The Senior Citizens League believes that the cost of living adjustment (COLA) will be around 8.7% for the next five years. The average retiree has seen an increase in their monthly budget.

The cost of living increases around 1% to 3% most years. One of the biggest raises in recent history was given to beneficiaries this year. The last 8.7% COLA was in 1981.

Other ways this could impact your benefits

A record-breaking COLA is more than just an increase in benefits. Several aspects of Social Security are affected by the annual COLA.

• A higher maximum benefit amount: In 2022, the most you can receive from Social Security is $4,194 per month. But because this number changes each year to account for cost-of-living changes, a higher COLA means there will likely be a higher max benefit for 2023.
• Increased maximum taxable earnings limit: If you haven't yet retired, the maximum income subject to Social Security taxes is $147,000 per year. This limit also changes yearly because of inflation, so it will likely increase after next year's COLA. This means higher earners will have more of their income subject to taxes.
• A higher earnings limit: If you continue working after claiming Social Security and you haven't yet reached your full retirement age (FRA), your benefits may be reduced if your income exceeds the annual earnings limit. In 2022, that limit is $19,560 per year (assuming you're still under your FRA). But with a higher COLA comes a higher earnings limit, which means you'll be able to earn more without facing reductions.
• Increased spousal and divorce benefits: The COLA doesn't just apply to retirement benefits. If you're receiving other types of Social Security -- such as spousal benefits, divorce benefits, or Supplemental Security Income (SSI) -- you'll receive a boost in 2023 as well.

Most areas of Social Security are affected by the COLA, so if you're already retired or planning to start receiving benefits soon, you'll see a lot of changes in the next few years.

How to prepare for next year's COLA

There's no need to do anything between now and January 23, when the new COLA takes effect. You won't need to apply for the increase because the changes will be automatic.

It is possible to make everyday essentials more affordable with a higher benefit amount. You can make sure you're prepared by knowing all the ways that the COLA will affect your benefits.

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