Now that the temperature is getting colder and we’re heading into October, there is something very important on the horizon for retirees: the announcement of the 2023 COLA for Social Security.
COLA stands for “cost of living adjustment,” and it is essentially a yearly increase to Social Security payouts. Every year, Social Security is increased by a percentage that is meant to counter inflation. Over time, goods will become more expensive, so the COLA is meant to make sure that the money you get for Social Security increases at a comparative rate.
Inflation and COLAs
Inflation has been very high over the past few years, so the bumps in pay have also been pretty significant. And while it might be nice to see a bigger number on those Social Security checks, sometimes a big increase in the COLA means that the cost of living has increased a lot. Note that recent data has shown that inflation is slowing, so it’s not out of the question that you might receive a lower COLA than you got last year. For context, inflation came in at roughly 3.8% year-over-year in July of 2023, but a year prior, in August of 2022, the year-over-year inflation was roughly 8.2%.
Why is the COLA decided in October?
The COLA is determined by looking at the CPI-W for the third quarter of every year. The CPI-W is the “Consumer Price Index for Urban Wage Earners And Clerical Workers” – quite a title for a pretty simple thing. The CPI-W is just a measure of how much everyday things have increased in price from last year to this year. So, it factors in gas prices, grocery prices, clothing prices, etc., and sees how much more expensive they are now. The third quarter ends in September, so seniors have to wait until October to learn what the COLA will be for the year. So, keep an eye out for that announcement!
There are many moments over the course of your retirement planning journey that add up to your larger financial picture, whether it’s a birthday that makes you eligible for a benefit one year, the sale of your house in another, or a new COLA announcement in October that changes your financial picture for the upcoming year. If you are looking for someone to guide you through the process of retirement planning, consider reaching out to one of our professionals for a complimentary review of your finances.