Increase in social security benefits 2023

By Eric Rosenberg, WCI Contributor

Every year the Social Security Administration updates beneficiary benefits based on various factors, including 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 increase in Social Security benefits is the largest we’ve seen in 40 years, with an annual increase of 8.7%.

“Medicare premiums are falling and Social Security benefits are increasing in 2023, giving seniors more peace of mind and respite. The significant Social Security cost-of-living adjustment of this year is the first time in more than a decade that Medicare premiums have not increased and shows that we can provide more support to older Americans who rely on the benefits they have earned,” the acting commissioner said. of the SSA, Kilolo Kijakazi said in a statement.

If you’re a retired healthcare professional or doctor considering taking Social Security in retirement, here’s how it affects you and what you need to know about the COLA increase.

2023 Social Security Cost of Living Increase Adjustment

Social Security cost-of-living adjustment is a normal activity for Social Security recipients. During typical periods of low inflation, all Social Security insureds receive a small increase in their benefits each year, usually around 2% or 3% historically. But sometimes, this rate goes much higher.

For 2023, the increase is 8.7%. That’s higher than the 5.7% increase in 2022 and one of the highest COLA updates in decades. The last time we saw such a large increase was in 1982, when the adjustment increase was 11.2%.

If you are retired and collecting Social Security benefits, your monthly payment will increase by 8.7% next year. For those on a tight budget, this increase is a huge relief from rapidly rising prices at the grocery store, gas pump and elsewhere.

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What does the Social Security adjustment mean 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 is expected to increase by approximately $146 to $1,827 per month for 2023 .

An increase of $146 per month equals $1,752 per year. While this isn’t a deal breaker for most retired doctors, it’s a big deal for those who don’t have significant retirement savings.

Many experts suggest that you save at least 15% of your annual gross income (meaning before taxes and deductions) for retirement in order to maintain the same quality of life during your golden years. Keep in mind that Dr. Jim Dahle advocates saving 20%. Social Security alone is often enough to keep someone out of poverty, but not enough to stay in the same house and meet medical bills, maintain your normal living needs, and have enough left over for leisure and hobbies.

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 one of the highest earners in your career and qualified for the highest benefits tier, an 8.7% raise is worth $365 per month. The new highest payment for 2023 would be $4,559 per month.

Here is some other interesting information, via the Social Security Administration.

social security benefits

COLA 2023 is not without precedent

Although rapid inflation can be painful, you should not panic. These are tough economic times, but not unlike the challenges of the past. Despite the attention grabbing headlines, inflation reached rates as high as 13.5%, far higher than what we see today. In mid-October 2022, inflation was 8.2%.

And also, just like today, the Federal Reserve raised interest rates to fight high inflation. Eventually it returned to the target level, and there is no reason to expect the same thing not to happen again after a period of sometimes painful economic changes.

increase in social security benefits

In 1980 and 1981, COLA increases were over 10%, with a sharp increase of 14.3% in 1980. The last time it took about five years for rates to return to a more “normal” level .

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Investing for retirement is a multi-pronged process. Social Security often plays an important role, even if you have a 401(k), IRA, or other supplemental retirement account. But when it comes to COLA, today’s retirees have something big to celebrate.

If you are approaching retirement or are already there, does the increase in COLA for Social Security give you a sense of peace? Why or why not? If you are not retired, does this increase affect your future planning? Comments below!