Here's How Much Your Social Security Benefits Could Increase In 2023
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Here's How Much Your Social Security Benefits Could Increase in 2023
As Americans continue to grapple with high prices, experts predict Social Security benefits will increase next year to keep up with inflation.
In 2022, seniors already saw the biggest boost in nearly four decades, thanks to an increase in the cost of living adjustment, or COLA. Starting in January, payments rose by 5.9%, or about $93 a month.
As a result, the average beneficiary is now receiving $1,657 a month.
But the consumer price index was already up to 9.1% in June, far ahead of the adjustment Social Security accounted for, and it remained unchanged in July. The 2023 adjustment "will be one of the highest COLAs ever paid in the history of the program," Mary Johnson, a policy analyst at the nonprofit Senior Citizens League, told the Detriot Free Press.
What will Social Security checks look like in 2023? When will seniors find out how much they're getting? Read on to find out.
How much will Social Security benefits go up next year?
The Social Security Administration won't disclose next year's cost of living adjustment until October, but many experts expect an even larger increase than in 2022.
Exactly how much of one, though, is hard to tell: In May, the Senior Citizens League estimated it would be 8.6%, based on inflation at that point. Since then, the league has shifted its forecast: If inflation remains constant, the group projects, the COLA could be around 9.6%, or roughly $160 more a month per check.
Predictions for how much the cost-of-living adjustment to Social Security will be next year have run the gamut from 8.6% to more than 11%.
Getty ImagesIf inflation bubbles back up in the two months before Social Security announces the 2023 COLA, it could be increased by 10.1%. If it cools, though, the adjustment could be closer to 9.3%.
The nonpartisan Committee for a Responsible Federal Budget in June estimated Social Security would add as much as 10.8% to account for inflation, or between $130 and $180 a month more for the nearly 70 million Americans on Social Security.
In July, the organization's senior policy director, Marc Goldwein, tweeted that if inflation remained on its current trajectory, the increase would be 11.4%, the highest since 1981, when benefits rose 11.2%.
If Goldwein is right, that would put monthly Social Security checks at almost $1,850.
Inflation has cooled somewhat since his pronouncement, though consumer prices are still high. As the economy continues to fluctuate in the months before the official COLA announcement, new estimates for increases to Social Security benefits are sure to emerge.
Separate from any COLA increase, a bill before Congress could see Social Security recipients getting an additional $2,400 a year in 2023. Introduced by Rep. Peter DeFazio and Sen. Bernie Sanders, the Social Security Expansion Act would add $200 to each monthly check for anyone currently receiving benefits or who will turn 62 next year.
The measure hasn't moved forward since it was introduced in June, however.
When will I know what my Social Security benefits are for 2023?
The Bureau of Labor Statistics is scheduled to announce inflation data for September on Oct. 13, and the Social Security Administration typically announces the cost-of-living adjustment issues soon after.
Beneficiaries should then receive letters detailing their specific benefit rate in December. If you miss this letter, you can still verify your increase online via the My Social Security website.
The COLA goes into effect with December benefits, which appear in checks received in January 2023.
Social Security payments are made on Wednesdays, following a rollout schedule based on the beneficiary's birth date: If you were born from the 1st through the 10th of the month, your benefits are paid on the second Wednesday of the month and any increase will appear in your Jan. 11 check.
Any increase in Social Security payments will appear in January 2023 checks.
Valerie Macon/AFP/Getty ImagesIf your birthday falls between the 11th and 20th of the month, your checks are paid on the third Wednesday, and you'll see your first COLA increase on your Jan. 18 check.
Those born between the 21st and the end of the month receive benefits on the fourth Wednesday, which, in 2023, is Jan. 25.
How does this year's Social Security increase compare to inflation?
Though the 5.9% bump in January 2022 was the highest in 40 years, it already hasn't kept pace with inflation for the year.
The Bureau of Labor Statistics announced the consumer price index rose 9.1% between June 2021 and June 2022.
In July 2022, it was still up, but only by 8.5% over July 2021.
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This story is part of Recession Help Desk, CNET's coverage of how to make smart money moves in an uncertain economy.
What's happening
Inflation slowed slightly in July, but prices remain at record highs. Economists still worry that a recession, or even stagflation, is a risk.
Why it matters
Soaring prices mean that gas, food and necessities are more expensive, and a slow economy means it's harder for Americans to earn money, secure employment and save.
What's next
The Fed raised rates last month to try to combat staggering inflation. The central bank meets again in September to determine whether more interest rate hikes -- which could slow down the economy -- are necessary.
The newest Consumer Price Index numbers for July are out -- and while inflation cooled slightly, prices still remain at record highs. The index for gas fell by 7.7%, but that decline was offset by increases in food and housing. That places overall inflation at 8.5% over the last 12 months, a slight decrease from June's 9.1% reading.
In July, prices for shelter, medical care, car insurance, household furnishings, new vehicles and recreation all ticked up. Prices declined in July for airline fares, used cars and trucks, communication and apparel. Even if you remove energy and food from the equation, which tend to have volatile pricing, inflation still rose by 0.3% in July -- compared to 0.7% in June.
Last month, in an attempt to stifle runaway inflation, the Federal Reserve raised the federal funds rate by another 75 basis points. That marked the Fed's fourth rate increase of the year. While containing inflation is the Fed's primary goal right now, many financial experts worry that raising rates too aggressively and quickly could push the economy into a recession. Or, if inflation remains high as unemployment rates start ticking up, the US could find itself in a period of stagflation.
What does all of this mean, exactly, and should you be worried? We'll break down what inflation is, how we got to this point and explain the difference between a recession and stagflation. Here's everything you need to know about rising prices and where the economy might be headed.
What is inflation?
Simply put, inflation is a sustained increase in consumer prices. It means a dollar bill doesn't get you as much as it did before, whether you're at the grocery store or a used car lot. Inflation is usually caused by either increased demand (such as COVID-wary consumers being finally ready to leave their homes and spend money) or supply side factors like increases in production costs and supply chain constraints.
Inflation is a given over the long term, and it requires historical context to mean anything. For example, in 1985, the cost of a movie ticket was $3.55. Today, watching a film in the theater will easily cost you $13 for the ticket alone, never mind the popcorn, candy or soda. A $20 bill in 1985 would buy you almost four times what it buys today.
Typically, we see a 2% inflation rate from year to year. It's when the rate rises above this percentage in a short period of time, like it has throughout 2022, inflation becomes a concern. As wages fail to keep up with skyrocketing prices for basic goods and more companies initiate layoffs, US households, particularly low-income Americans, are feeling severe financial strain on their wallets.
Right now, gasoline, food and housing are the biggest drivers of our current high levels of inflation. However, prices are up across the board. Even outside of "core inflation," price indices for medical care, car insurance, clothing, household furnishings and recreation all rose last month.
What's a recession?
The slowdown in the US economy during the first quarter of 2022 has raised concerns of a recession. This refers to a period of prolonged economic decline and market contraction where the unemployment rate goes up and production goes down, generally slowing inflation.
Looking back at previous US recessions tells us that, during a period of recession, unemployment rates tend to go up and the prices of goods begin to drop. It's generally harder to obtain financing during a recession, as banks tighten their requirements, to minimize their risk of lending to borrowers who may default on loans.
What about stagflation? Is it the same as a recession?
Stagflation, on the other hand, refers to a period where a recession is uniquely coupled with high inflation. According to Bank of America's fund manager survey in June, 83% of investors expect a period of stagflation within the next 12 months.
A mash-up of "stagnation" and "inflation," the term "stagflation" was coined in 1965, when British politician Iain Macleod lamented the country's growing gap between productivity and earnings: "We now have the worst of both worlds -- not just inflation on the one side or stagnation on the other, but both together. We have a sort of 'stagflation' situation and history in modern terms is indeed being made."
Stagflation became more widely known during what was known as the Great Inflation in the US in the 1970s. As unemployment hit 9% in 1975, inflation kept ratcheting upward and reached more than 14% by 1980. Memories of this dismal economic period have factored into current fears about out-of-control inflation.
Economic circumstances today have some parallels to the 1970s, but also major differences. During the energy crises then and today, a disruption in the supply chain helped fuel inflation, followed by a period of relatively low interest rates, in an attempt to expand the supply of money in the economy. Unlike the 1970s, though, both the dollar and the balance sheets of major financial institutions are strong. The official US unemployment rate also still remains low, currently sitting at 3.5%, according to the Bureau of Labor Statistics.
When do we know we're in a period of inflation?
Inflation isn't a physical phenomenon we can observe. It's an idea that's backed by a consensus of experts who rely on market indexes and research.
One of the most closely watched gauges of US inflation is the Consumer Price Index, which is produced by the federal Bureau of Labor Statistics and based on the diaries of urban shoppers. The CPI reports track data on 80,000 products, including food, education, energy, medical care and fuel.
The BLS also puts together a Producer Price Index, which tracks inflation more from the perspective of the producers of consumer goods. The PPI measures changes in seller prices reported by industries like manufacturing, agriculture, construction, natural gas and electricity.
And there's also the Personal Consumption Expenditures price index, prepared by the Bureau of Economic Analysis, which tends to be a broader measure, because it includes all goods and services consumed, whether they're bought by consumers, employers or federal programs on consumers' behalf.
The current inflationary period generally started when the Labor Department announced that the CPI increased by 5% in May 2021, following an increase of 5% in April 2021 -- a rise that caused a stir among market watchers.
Though a rise in the CPI in and of itself doesn't mean we're necessarily in a cycle of inflation, a persistent rise is a troubling sign.
How did we get such high inflation in the first place?
Today's inflation was originally categorized as "transitory" -- thought to be temporary while economies bounced back from COVID-19. US Treasury Secretary Janet Yellen and economists pointed to an unbalanced supply-and-demand scale as the cause for transitory inflation, provoked when supply-chain disruptions converged with high consumer demand. All of this had the effect of increasing prices.
But as months progressed, inflation started seeping into portions of the economy originally undisturbed by the pandemic, and production bottlenecks persisted. The US was then hammered by shocks to the economy, including subsequent COVID variants, lockdowns in China and Russia's invasion of Ukraine, all leading to a choked supply chain and soaring energy and food prices.
"I think I was wrong about the path that inflation would take," Yellen told CNN in late May. "There have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that I didn't -- at the time -- didn't fully understand, but we recognize that now."
How can the Federal Reserve try to ease inflation?
The Fed, created in 1913, is the control center for the US banking system and handles the country's monetary policy. It's made up of 12 regional Federal Reserve banks and 24 branches and is run by a board of governors, all of whom are voting members of the Federal Open Market Committee, which is the Fed's monetary policymaking body.
While the BLS reports on inflation, the Fed moderates inflation and employment rates by managing the supply of money and setting interest rates. Part of its mission is to keep average inflation at a steady 2% rate. It's a balancing act, and the main lever it can pull is to adjust interest rates. In general, when interest rates are low, the economy and inflation grow. And when interest rates are high, the economy and inflation slow.
The federal funds rate is the interest rate banks charge each other for borrowing and lending. When the Fed raises this rate, banks pass on this rate hike to consumers, driving up the overall cost of borrowing in the US. Consequently, this often drives consumers, investors and businesses to pause their investments, rebalancing the supply-and-demand scales disrupted by the pandemic.
Raising interest rates makes it more expensive for businesses and consumers to take out loans, meaning buying a car or a home will get more expensive. Moreover, securities and cryptocurrency markets could also be negatively affected by this: As interest rates increase, liquidity in both markets goes down, causing the markets to dip.
With rates well over the 2% inflation goal, the Fed reacted by raising rates a quarter percentage point in March, a half point in May, three quarter points in June and another three quarter points in July. The Fed has noted that we are likely to see more rate hikes this year -- as many as six total.
What about deflation, hyperinflation, shrinkflation?
There are a few other "flations" worth knowing about. Let's brush up.
Deflation
As the name implies, deflation is the opposite of inflation. Economic deflation is when the cost of living goes down. (We saw this, for example, during parts of 2020.) Widespread deflation can have a devastating impact on an economy. Throughout US history, deflation tends to accompany economic crises. Deflation can portend an oncoming recession as consumers tend to halt buying in hopes that prices will continue to fall, thus creating a drop in demand. Eventually, this leads to consumers spending even less, lower wages and higher unemployment rates.
Hyperinflation
This economic cycle is similar to inflation in that it involves an increase in the cost of living. However, unlike inflation, hyperinflation takes place rapidly and is out of control. Many economists define hyperinflation as the increase in prices by 1,000% per year. Hyperinflation is uncommon in developed countries like the US. But remember Venezuela's economic collapse in 2018? That was due in part to the country's inflation rate hitting more than 1,000,000%.
Shrinkflation
Tangentially related to inflation, shrinkflation refers to the practice of companies decreasing the size of their products while keeping the same prices. The effect is identical to inflation -- your dollar has less spending power -- and becomes a double whammy when your dollar is already weaker. Granola bars, drink bottles and rolls of toilet paper have all been caught shrinking in recent months.
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