What is the Cost of Living Adjustment (COLA) and how does it affect retirement benefits?

The Cost of Living Adjustment (COLA) is the amount that the Social Security Administration (SSA) increases benefits every year to keep payments up to speed with price rises. Were it to not exist, benefits claimants would see their real-world support decrease every year.

The COLA change is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) which is published monthly by the US Bureau of Labor Statistics.

This an official measure of the monthly price change of common goods and services, and is used to gauge the rate of price increase. The Social Security Administration uses the monthly average from the third quarter, July, August and September, to establish the rate of year-on-year increase.

The CPI-W report for August is due to be released on Tuesday, 13 September; after which we should have a good idea of the likely size of the 2023 COLA increase.

When is the COLA released?

The US Bureau of Labor Statistics will release the Consumer Price Index data for September 2022, the last month of the third quarter.

Last year, the Social Security Administration released the 2021 COLA on the same day as that in 2020, October 13. It could be expected the 2022 COLA could be known as soon as Thursday 13 October 2022. However, those who don’t wish to be waiting around for the announcement can get the news sent directly to them.

Those who use the My Social Security online service can sign up to receive a message regarding the change in COLA. To receive free notifications from the Social Security Administration, log into your account and under “Message Center Preferences” you can choose to receive an email or text with the latest information.

How much will the 2023 COLA increase affect benefits?

Put simply, the COLA increase has a direct impact on the total amount a Social Security recipient can receive. In 2022, the average monthly Social Security retirement benefit is $1,668, according to data provided by the Senior Citizens League (SCL). The group estimates that the 2023 COLA increase could be as high as 10.5%. So far, the CPI-W inflation measurement has year-on-year inflation at around 9.8%.

A 10.5% increase would increase the average pay out to a beneficiary of an extra $175.10 per month.

This huge increase would be unprecedented, despite the large increase between 2021 and 2022; the increase was 5.9%. This was the highest COLA increase in nearly 40 years, but this year’s boost could be substantially higher.