By Eric Rosenberg, WCI Contributor
Every year, the Social Security Administration updates recipient benefits based on various factors, namely inflation. When the cost of living increases in the United States, Social Security benefits follow suit through an annual cost of living adjustment (COLA). For 2023, the Social Security benefits increase is the biggest we’ve seen in 40 years, with an 8.7% annual increase.
“Medicare premiums are going down and Social Security benefits are going up in 2023, which will give seniors more peace of mind and breathing room. This year’s substantial Social Security cost-of-living adjustment is the first time in over a decade that Medicare premiums are not rising and shows that we can provide more support to older Americans who count on the benefits they have earned,” Acting SSA Commissioner Kilolo Kijakazi said in a statement.
If you’re a retired medical professional or a doctor planning on Social Security in retirement, here’s how this impacts you and what you need to know about the COLA increase.
Social Security Cost of Living Increase Adjustment 2023
The Social Security Cost of Living Adjustment is a normal part of business for Social Security recipients. During typical low-inflation periods, everyone on Social Security receives a small bump in their benefits yearly, usually around 2% or 3% historically. But sometimes, that rate goes much higher.
For 2023, the increase is 8.7%. That’s higher than the 2022 increase of 5.7% and one of the highest COLA updates in decades. The last time we saw an increase this high was in 1982 when the adjustment increase was 11.2%.
If you’re retired and receiving Social Security benefits, your monthly payment will go up by 8.7% next year. For those on a tight budget, that increase is a huge relief among rapidly rising prices at the grocery store, gas pump, and elsewhere.
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What the Social Security Adjustment Means for Retirees
According to Social Security data, the average retirement benefit payment is $1,681 per month in 2022. With the new COLA announcement, the average benefit should go up by about $146 to $1,827 per month for 2023.
An increase of $146 per month adds up to $1,752 per year. While that isn’t a make or break for most retired doctors, it’s a big deal for those without significant retirement savings.
Many experts suggest that you save at least 15% of your annual gross income (that’s before taxes and deductions) for retirement to maintain the same quality of life during your golden years—keep in mind that Dr. Jim Dahle advocates for saving 20%. Social Security alone is often enough to keep someone out of poverty but not enough to stay in the same home and keep up with medical costs, maintain your normal living needs, and have enough left over for leisure and recreation.
The maximum possible Social Security benefit for 2022 is $4,194 for someone taking benefits at age 70 for the first time. If you were a top earner for your career and qualify for the top benefit level, an 8.7% increase is worth $365 per month. The new top payment for 2023 would be $4,559 per month.
Here's some other interesting information, via the Social Security Administration.
2023 COLA Isn’t Unprecedented
While rapid inflation can be painful, you shouldn't panic. This is a challenging economic time, but it's not unlike challenges seen in the past. Despite attention-seeking headlines, inflation has reached rates as high as 13.5%, much higher than what we’re experiencing today. As of mid-October 2022, inflation was at 8.2%.
And also, just like today, the Federal Reserve lifted interest rates to combat high inflation. Eventually, it returned to the target level, and there’s no reason to expect the same won’t happen again after a period of sometimes painful economic shifts.
In 1980 and 1981, COLA increases were more than 10%, with a high 14.3% increase in 1980. The last time around, it took about five years for rates to return to a more “normal” level.
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Social Security Bend Points — Maximizing Your Benefit
Investing for retirement is a multi-pronged process. Social Security often plays an important role, even if you have an additional 401(k), IRA, or other retirement account. But when it comes to COLA, today’s retirees have something big to celebrate.
If you're getting close to retirement or are already there, does the COLA increase for Social Security give you a sense of peace? Why or why not? If you're not retired, does this increase affect your future planning? Comment below!