Make the most of Social Security COLA increase

If you’ve been receiving Social Security, you probably recall that you got a sizable “raise” in 2022. But in 2023, the cost-of-living adjustment (COLA) is even sweeter for retirees – your monthly benefits will be 8.7% bigger, the largest COLA in 40 years. What’s behind this jump? And how can you take advantage of it?
By definition, inflation is the cause of this large COLA. To arrive at a figure, the the Social Security Administration (SSA) uses a formula based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
You’ll notice the increase in your monthly benefits with your first Social Security payment in 2023. What’s more – Medicare Part B premiums are declining next year, to $164.90/month from $170.10/month, which will provide an additional modest increase to Social Security checks for those enrolled in Part B since the premiums are automatically deducted. How much of a difference the new amount makes in your life will depend on your overall financial situation. But regardless of your situation, you might want to consider how you could use the extra money.
Here are a few suggestions:
While the COLA for 2023 is certainly welcome, you probably shouldn’t count on future increases being nearly as large as this year’s. The recent spike in inflation was exacerbated by a confluence of unusual factors, including pandemic-related government spending, supply shortages and the Russian invasion of Ukraine. As these issues work themselves out, we would expect inflation to subside, leading to smaller COLA bumps. And that means that any measures you take in response to the 2023 COLA increase may need to be reviewed next year.
But for now, you may want to contact your financial advisor to see how any of the ideas mentioned above might be included in your comprehensive financial strategy. A large increase in your retirement income is a rare event – and one that you’ll want to use to your full advantage.