In this post, we’ll answer the question: “Will there be a 2023 Social Security Increase?”
While it’s still too early to know for sure, VA Claims Insider’s revised estimate (as of May 11, 2022) is a 2023 COLA increase of 8.9%.
Okay, let’s explore how we got to the revised number.
With soaring inflation in the U.S. economy, the Federal Reserve plans to institute a series of 6 rate hikes this year (likely a quarter to half point each), which will increase the federal funds rate to 1.9% by year end, slowing consumer spending and fighting inflation.
“The Federal Reserve aims to keep inflation around 2% each year. It’s primary mechanism to do so is to expand or contract the U.S. economy through interest rates. Reducing interest rates acts as a gas pedal while increasing interest rates acts as a brake. Right now, the Fed needs to get inflation under control, and the best way to do that is to shrink the economy and reduce consumer spending on goods and service. Thus, it’s time to pump the brake.”Brian Reese – VA Benefits Expert & Author
Overall, the fed rate hikes are too little too late in our opinion, and thus, with soaring inflation in the economy, we estimate a massive 8.9% 2023 COLA increase.
- What is a Cost of Living Adjustment?
- What is the 2023 Social Security COLA?
- What is the Cost of Living Increase 2023?
- How is the COLA Rate Calculated?
- What Happens If There Is No COLA Increase?
- What Programs Are Impacted by COLA?
- Historical Cost of Living Adjustment (COLA) Increases Since 1984
- About the Author
What is a Cost of Living Adjustment?
A Cost-Of-Living Adjustment (COLA) is calculated automatically each year and is intended to reflect the change in the cost of living over a one-year (365 day) period.
The primary purpose of a COLA increase is to help consumers maintain their spending power relative to inflation.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is updated monthly by the Bureau of Labor Statistics (BLS), is the measure used to calculate whether there will be a COLA increase.
The CPI-W is an estimate of the average change in prices of the goods and services purchased by households whose incomes come primarily from clerical or wage occupations.
The BLS measures the price change of each item in a “basket” of goods that the average person purchases, and then it computes overall inflation (weights each of those price changes by the item’s share of spending).
What is the 2023 Social Security COLA?
The 2023 Social Security COLA is based on the percentage increase from the highest third quarter average CPI-W recorded from 2021 compared to the average CPI-W for the third quarter of the current year (3rd quarter 2022).
The percentage increase is rounded to the nearest one-tenth of 1% (0.1%).
The Social Security benefit amount, after applying the COLA, is rounded down to the next lowest dime.
If the CPI-W triggers a COLA this year, the COLA becomes effective in December 2022, and is payable in January 2023.
Social Security payments and 2023 VA disability rates always reflect the benefits due for the preceding month.
In some years, however, the CPI-W does not increase.
In fact, sometimes a decrease has been recorded (e.g., 2010, 2011, and 2016).
In those years, no COLA was payable as required by law, which means the increase is zero.
Benefits don’t get reduced to mirror the lower cost of living and are held to the previous period’s levels.
The Social Security COLA can never be negative, even during times of a decreasing price index.
What is the Cost of Living Increase 2023?
On October 13, 2022, the Social Security Administration (SSA) will announce the 2023 Cost of Living Increase, which VA Claims Insider estimates to be a whopping 8.9%.
With inflation at a 40-year high, primarily due to strong consumer demand and pandemic-related supply constraints, we expect the Federal Reserve to institute a series of three to four rate increases this year, which should begin to curb inflation by the 3rd quarter of 2022.
However, we think it’s too little too late, and inflation won’t slow as quickly as expected, which is why we’re projecting a large COLA increase this year.
The new Social Security COLA, which also affects 2023 VA disability rates, will first be paid in January 2023.
The BLS will release its September 2022 CPI-W, and on that day, we can compare the two July-September (3rd quarter) sets of CPI-W data (one for 2021 and another for 2022) needed to compute the 2023 COLA increase.
How is the COLA Rate Calculated?
We won’t be able to officially calculate the 2023 COLA until the third quarter CPI-W data gets released in the fall of 2022.
But we can use 2022 as an example of how the COLA rate gets calculated each year, and plug-and-play the new CPI-W data as soon as it’s released.
Here’s the formula to calculate a COLA increase:
First, we need to calculate the Average CPI-W Index Points for Third Quarter of 2020 (rounded to the nearest one-thousandth of a point), which was 253.412.
Second, we need to calculate the Average CPI-W Index Points for the Third Quarter of 2021, (rounded to the nearest one-thousandth of a point), which was 268.421.
Finally, take the percentage “increase” or “decrease” from the third quarter average for 2020, compared to the third quarter average for 2021, and multiply by 100% (rounded to the nearest one-tenth of 1% for the final application, when positive, as required by law.)
The final COLA calculation for 2022 looked like this: ((268.421 – 253.412) / 253.412) * 100% = 5.9%.
Source: Bureau of Labor Statistics (BLS) data series for the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for 2020 and 2021, at: https://www.bls.gov/cpi/data.htm.
Here’s how we estimated our 2023 cost of living increase number:
First, we need to calculate the Average CPI-W Index Points for the Third Quarter of 2021, (rounded to the nearest one-thousandth of a point), which was 268.421.
Second, we need to estimate the Average CPI-W Index Points for the Third Quarter of 2022, (rounded to the nearest one-thousandth of a point), which is 292.325.
Finally, we took the percentage “increase” from the third quarter average for 2021, compared to the third quarter estimated average for 2022, and multiply by 100%.
The final COLA calculation for 2023 could look like this: ((292.325 – 268.421) / 268.421) * 100% = 8.9%.
Source: Bureau of Labor Statistics (BLS) data series for the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for 2021 and an estimate for 2022, at: https://www.bls.gov/cpi/data.htm.
What Happens If There Is No COLA Increase?
Since automatic Social Security Benefit COLAs began in 1975, there have been three years in which no COLA was payable: 2010, 2011, and 2016.
The Social Security Act specifies that a COLA is payable automatically if the average CPI-W for the third quarter of the current year is higher than the highest average CPI-W for the third quarter of past years, which is called the “cost-of-living computation quarter.”
If the average CPI-W for the third quarter of the current year is equal to or less than the average CPI-W for the cost-of-living computation quarter, no COLA is payable.
For example, the average CPI-W for the third quarter of 2009 was less than the average CPI-W for the third quarter of 2008 (211.001 and 215.495, respectively).
As a result, an automatic COLA in January 2010 was not triggered and the third quarter of 2008 remained the cost-of-living computation quarter (i.e., the benchmark) used to determine if a COLA would be payable in January 2011.
New cost-of-living computation quarters were subsequently established in each year from 2012 to 2014, when the average CPI-W for the third quarter of 2012, 2013, and 2014 exceeded that for the third quarter of each preceding year.
Similarly, since the average CPI-W for the third quarter of 2015 (233.278) did not exceed that of 2014 (234.242), no COLA was paid in January 2016.
Thus, for the COLA payable beginning in January 2017, the cost-of-living computation benchmark quarter remained the third quarter of 2014 where it was compared with the average CPI-W for the third quarter of 2016.
What Programs Are Impacted by COLA?
Social Security COLAs trigger increases in other programs as well.
Supplemental Security Income (SSI) benefits and railroad retirement “Tier 1” benefits (the portion of the railroad retirement benefit equivalent to a Social Security benefit) are increased by the same percentage as the Social Security COLA.
Railroad retirement “Tier 2” benefits (equivalent to a private pension) are increased by an amount equivalent to 32.5% of the Social Security COLA (If no COLA is paid to Social Security beneficiaries, then the railroad retirement tier 2 benefits are not increased.)
VA disability rates and VA pension benefits are also increased in the same amount as Social Security increase.
Although COLAs under the Civil Service Retirement System (CSRS) and the federal military retirement system are not triggered by the Social Security COLA, these programs use the same measuring period and formula for determining their COLAs.
The COLA for recipients of Federal Employees’ Retirement System (FERS) benefits equals the Social Security COLA if inflation is 2% or less but is lower than the Social Security COLA otherwise.
Historical Cost of Living Adjustment (COLA) Increases Since 1984
The table below shows historical COLA effective dates, along with the COLA increase percentage since 1984.
Note there was no COLA in 2010, 2011, or 2016.
|Effective Date||COLA Increase Percentage|
|1/1/2023||8.9% (revised COLA estimate)|
About the Author
Brian Reese is one of the top VA disability benefits experts in the world and bestselling author of You Deserve It: The Definitive Guide to Getting the Veteran Benefits You’ve Earned (Second Edition).
Brian’s frustration with the VA claim process led him to create VA Claims Insider, which provides disabled veterans with tips, strategies, and lessons learned to win their VA disability compensation claim, faster, even if they’ve already filed, been denied, gave up, or don’t know where to start.
As the founder of VA Claims Insider and CEO of Military Disability Made Easy, he has helped serve more than 10 million military members and veterans since 2013 through free online educational resources.
He is a former active duty Air Force officer with extensive experience leading hundreds of individuals and multi-functional teams in challenging international environments, including a combat tour to Afghanistan in 2011 supporting Operation ENDURING FREEDOM.
Brian is a Distinguished Graduate of Management from the United States Air Force Academy, Colorado Springs, CO, and he holds an MBA from Oklahoma State University’s Spears School of Business, Stillwater, OK, where he was a National Honor Scholar (Top 1% of Graduate School class).