The Joseph Group

Social Security and Inflation – Do They Play Nice?

October 21, 2022

To Inform:

Each fall some 66 million people who receive social security benefits tune in to see what cost-of-living adjustment, or COLA, will be introduced by the Social Security Administration (SSA). Annual COLAs have occurred since 1975 and are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), with the intent of helping beneficiaries maintain purchasing power year over year.

Last week the Social Security Administration announced the COLA for 2023, a healthy 8.7%, the highest increase since 1981, over 40 years ago, and the third highest increase ever received! (The largest COLA was received in 1980, at 14.3%). This comes on the heels of a 5.9% increase for 2022 benefits. For comparison, the average increase from 2010 – 2020 was 1.5%.

What does the COLA mean to me?

  • For those receiving benefits, it will result in a meaningful increase over 2022 benefits as the SSA estimates the average benefit will be ~$150 higher per month in 2023. A nice raise as we continue battle the current inflationary environment!
  • For those who are eligible for social security but have not yet begun receiving benefits, there may be additional consideration to delaying benefits, especially for married couples with the higher earning spouse delaying to age 70. The impact of compounded inflation adjustments to the higher base benefit could be meaningful.
  • For those not yet eligible for social security, you will likely benefit as well, though it will depend on when you file for benefits. COLA adjustments are received if you apply for retirement benefits after age 62. A beneficiary will receive COLA adjustments for the years between first eligibility (62), and your filing date.
    • For example, assume you reach your full retirement age of 67 and plan to file benefits the same year. At that point, your benefit would receive the cost-of-living adjustments from the previous five years, from the point you reached 62.

That said, regardless of when you file for benefits, your Social Security benefits indirectly take inflation into account by indexing past, lower earning years upward when calculating your benefit. So, in that sense, all current and future retirees benefit!

Questions surrounding social security, how it impacts your financial plan, and the optimal age to claim your benefit? Drop us a line or give us a call, the Joseph Group Advisory team is here!





Written by Matt Zimmermann, Client Advisor