Get expert insights delivered straight to your inbox.

Skip to Main Content

2023 Social Security Cost-of-Living Adjustment (COLA) Is the Highest in 40 Years

This year, Social Security benefits went up by a whopping 8.7%. That’s the highest Social Security increase in 40 years! 1

In the world of Social Security, this increase is called the cost-of-living adjustment (COLA for short). Basically, COLA is used every year to help recipients of Social Security and Supplemental Security Income (SSI) cover the rise in the price of food and just about everything else due to inflation. (A trip to the grocery store seems to cost an arm and a leg these days!)

In their January 2023 payout, retirees, people with disabilities and others who receive Social Security should have seen a spike from their December 2022 benefit. This means they’ll have a little more cash in their budget to make ends meet.

How Much Will Social Security Increase in 2023?

If you got an 8.7% raise at your job, you might celebrate with dinner out. (Chili’s, here we come!)

But let’s take a look at how the 8.7% COLA works out in dollars and cents for retirees.

The average Social Security benefit for a retired worker in 2022 was $1,681. COLA increased that benefit by $146 a month to $1,827.2 (We’ll do the math for you: That’s a total benefit of about $22,000 a year compared to roughly $20,200.)

Okay, $146 might seem like a nice chunk of change, but most of that money’s going to be eaten up by inflation, which was 6.5% in December of 2022.3 And really, that’s the point of COLA. It’s not a merit-based pay raise or a stimulus check. It’s meant to help those using Social Security  combat inflation and keep some of their purchasing power. (Purchasing power basically means how far your dollars go to cover the price of things you want to buy.)

What Is COLA?

We gave you a quick definition earlier, but let’s dive deeper. COLA is an annual increase in Social Security benefits based on the consumer price index (CPI), an economic tool that measures inflation.

So, what does all that mean? When inflation rises, so does COLA. And since inflation hit 40-year highs in 2022, that caused COLA to also reach a 40-year high. (Didn’t see that coming, right?)

What Is the History of COLA?

Now that we know what COLA is, let’s look at how it came to be. Way back in the day, politicians used to vote to increase Social Security benefits (and since politicians like to politicize things, yes, it became politicized).  So, in 1975, the Social Security Administration (SSA) started automatic COLA. This means that COLA automatically adjusts every year based on the CPI. The SSA usually announces COLA each October.

2023 is the second year Social Security recipients got a big bump. The 2022 COLA was 5.9%. For the decade before that, the average increase was just 1.65% per year.4 (We also had much lower inflation during those years.)

While COLA has never been negative, it was 0% in 2010, 2011 and 2016.5

Medicare Premiums Won’t Eat Up COLA

If you receive Social Security and are enrolled in Medicare Part B (standard Medicare insurance), your monthly premium is automatically deducted from your Social Security check.

The good news here is that Medicare Part B premiums went down by $5.20 to $164.90 in 2023. That means your COLA won’t be eaten up by higher Medicare premiums.6

Don’t Depend on Social Security in Retirement

Like we said earlier, the average Social Security benefit is $1,827 a month.7 If Social Security is all you have for retirement, you could end up in a pretty tight spot if you’re trying to live on less than two grand a month.

money bag

Market chaos, inflation, your future—work with a pro to navigate this stuff.

And some seniors find themselves in that spot. About 12% of men and 15% of women over the age of 65 rely on Social Security for 90% or more their income. Social Security makes up more than half of the income for 37% of men and 42% of women over 65.8

Not to mention, Social Security is facing a financial shortfall that will keep it from paying full benefits by 2034.9 You can’t count on Uncle Sam to take care of you in your golden years!

That’s why it’s best to save for retirement and build your own nest egg. The best way to do that is to invest 15% of your gross income into tax-advantaged accounts like a 401(k) and a Roth IRA.

Work With a Pro

Saving for the future is a marathon, not a sprint. With the right plan and the right actions, you can enjoy your life now and still make progress toward your financial goals—even that million-dollar mark!

Ready to being building wealth? A SmartVestor Pro can help you outline a plan no matter your financial situation.

Find a SmartVestor Pro today!

Make an Investment Plan With a Pro

SmartVestor shows you up to five investing professionals in your area for free. No commitments, no hidden fees.

Find Your Pros

This article provides general guidelines about investing topics. Your situation may be unique. To discuss a plan for your situation, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros. 

Did you find this article helpful? Share it!

Ramsey Solutions

About the author


Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

Related Articles

What Is Inflation

What Is Inflation?

Inflation hits us all where it hurts—in our wallets. Inflation is an increase in the price of goods and services over time. In other words, things just cost more than they did in the good ol’ days.

Ramsey Ramsey