If you receive Social Security benefits, you can expect them to be boosted by 8.7% in 2023. This cost-of-living adjustment (COLA) was announced by the Social Security Administration on October 13th, and it is a massive increase from that of previous years.
What does this mean for you, and what does it imply for the future?
In 2022, the Social Security cost-of-living adjustment was 5.9%, which was the highest in forty years. The last time the COLA was this high was in 1981, at 11.2%. This adjustment rate is set automatically, based on the inflation rate each year between July and September as it compares to the previous year, and has been set this way since the 1970’s. The amount is based on the rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
Use the extra benefit wisely
Despite these annual adjustments for inflation, a 2021 study found that the buying power of Social Security benefits declined by 30% from 2000 to early 2021, in part because the CPI-W is weighted more heavily toward items purchased by younger workers than by Social Security beneficiaries. Due to this method of setting the COLA, you should not anticipate that the increase you are seeing in 2023 will be continued in the upcoming years; be sure to handle the extra money wisely to prepare for future years in which your benefits may not be as high.
While the COLA will actually take effect with the December 2022 benefits, payments will be made in January 2023. To gauge how much more money you may see next year, take your net Social Security benefit, add in your Medicare premium, and multiply that by the 2023 COLA.
If you have not yet begun to claim Social Security benefits, you may consider delaying until they are needed. Your benefits will still reflect the cost-of-living adjustments whether you claim them now or in a later year. Each year that you delay, benefits will increase 8% from your retirement age until age 70. Obviously, this strategy will not be ideal for every person, especially if you have health concerns, but you can change your mind at any point and begin receiving payments- you don’t have to delay until age 70 even if that was your initial plan. Conversely, if you are not ready to retire or decide to go back to work after retiring, you can still receive your social security benefits.
If you are in need of a financial planner to help you get the most out of your benefits to enjoy a long and comfortable retirement, contact Blakely Financial today.
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