Social Security benefits are set to rise by 8.7% in 2023, the biggest bump in four decades as stubbornly high inflation erodes the buying power of retired Americans, the Social Security Administration said Thursday.
The increase, known as a cost-of-living adjustment (COLA), is the biggest since 1981, when recipients saw an 11.2% jump. It will increase the average monthly benefit by about $140.
More than 64 million Americans collecting Social Security will receive the bigger payments beginning in January, the administration said.
The higher payments come in response to the hottest inflation in four decades: Prices paid by U.S. consumers surged 8.2% in September from the previous year, the Labor Department reported Thursday, despite an aggressive campaign by the Federal Reserve to cool inflation.
It also comes as the national debt tops $31 trillion for the first time.
The annual Social Security change is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W, which jumped 8.5% over the past year.
"A Social Security cost-of-living-adjustment of 8.7% is rare — enjoy it now," said Mary Johnson, a policy analyst at the Senior Citizens League. "This may be the first and possibly the last time that beneficiaries today receive a COLA this high."
Still, the decades-high benefit increase is not always good news for recipients, according to Johnson. Higher Social Security payments are a bit of a Catch-22. They can reduce eligibility for low-income safety net programs like food stamps and can push people into higher tax brackets. More significant payments, essentially, do not necessarily result in more money in people's pockets.
The average benefit in 2022 jumped by 5.9%, which amounted to an average monthly increase of $92 for retired Americans, bringing the total amount to $1,657, the Social Security Administration announced last year. Soaring inflation has already eroded the entirety of the increase, however, with recipients losing 48% of their buying power as of August, according to calculations by the Senior Citizens League.
What's more, the unusually large COLA could move the Social Security insolvency date forward by more quickly depleting the funds.
The average monthly benefit would have to increase by $417.60 for retirees to maintain the same level of purchasing power as in 2000.