The waiting is over. Benefit checks will be going up by 8.7% in January.
The CPI-W, which is the index used to calculate the COLA, rose by 8.5% over the last 12 months to an index level of 291.854 (1982–84 = 100). In calculating the COLA, SSA takes the average of the indexes for July, August, and September (291.901), subtracts the average for the same period last year (268.421) and calculates the percentage gain, which was 8.747%.
SSA made it clear in its press release that it will not be necessary to call SSA: beneficiaries will be notified by mail in early December what their new benefit amount will be. To get the information a bit faster, people can go to their Social Security account and sign up for email or text notifications. They will get an alert when their COLA announcement has been posted as a message to their account.
People age 62 and older who have not started benefits yet will also get the COLA, but it will not show up directly in their statements. Rather, they can rest assured that in the year they turned 62 their PIA was calculated using the indexing factors and bend points in effect for that year and that every year thereafter the PIA will be raised by the COLA. When they claim their benefit it will reflect the original PIA, plus each year’s COLA, plus delayed credits if claiming after FRA, plus adjustments for additional earnings, if applicable.
The COLA notice going out to beneficiaries enrolled in Medicare will also provide Medicare premium information for 2023. We already know the Part B base premium will be $164.90, a decrease of $5.20 from the current $170.10. The IRMAA will range from $65.90 to $395.60, also a slight decrease from 2022 levels, while the first income tiers rise to $97,000 (from $91,000) for individuals and to $194,000 (from $182,000) for couples.
The Social Security wage base—that is, the maximum amount of wages subject to Social Security taxes—will rise to $160,200, nearly 9% higher than the current $147,000. The retirement earnings test exempt amounts rise to $21,240 per year, or $1,770 per month, up from the current $19,560/year or $1,630/month. The FRA year amounts rise to $56,520/year or $4,710/month, up from $51,960/year or $4,330/month.
The indexing factors and bend points for the 1961 cohort were not immediately available, but based on the rise in the wage base it looks like the average wage index for 2021 (there’s a two-year lag) rose by about 8.5%. This suggests that benefits for people under 62, whose benefits keep pace with the rise in wages (not prices), are also going up with inflation.
As we know, the fed is doing everything in its power to curb inflationary pressures in the economy, so people should enjoy this benefit boost while it lasts. And don’t forget about taxes. Most clients pay income tax on 85% of their benefits. To avoid surprises at tax time people can arrange to have income taxes withheld from their benefit checks.
In the weeks ahead we will be updating all the Savvy materials with 2023 numbers.
Reference
Fact Sheet: 2023 Social Security Changes