Why Not Everyone Will Receive an 8.7% Cola Increase in 2023 Under Social Security?


Social Security recipients will soon learn what their new monthly payments will be in 2023, following the implementation of the 8.7% cost-of-living adjustment (COLA).

Beginning in December, the Social Security Administration will begin mailing COLA notices to beneficiaries, detailing the payment amounts for the following year.

You may be wondering why you need to wait for the SSA to notify you of the new amount when you can simply multiply your current payment by 8.7%. But that’s not how it works.

Some payment increases will be greater than 8.7%, while others will be less.

The reason for this is that the COLA is applied to your PIA rather than your current benefit — and the two are not always the same.

The PIA is the benefit you would receive if you chose to begin receiving retirement benefits at your normal or full retirement age, according to the SSA. At this age, the benefit is neither reduced nor increased for early or delayed retirement.

The PIA formula sounds like something you’d learn in a calculus class in college. It is calculated by adding “three separate percentages of portions of average indexed monthly earnings,” according to the SSA’s website.

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The amounts are determined by the year a recipient turned 62, became disabled before turning 62, or died before turning 62.

The age at which you begin receiving Social Security retirement benefits is an important factor in determining your COLA. According to the Motley Fool, not everyone waits until they reach their full retirement age (FRA), which is currently 66 or 67, depending on when they were born, to begin collecting.

Your PIA and monthly payment may be the same if you wait until your FRA to claim your benefits.

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If you claim your benefits at a different age, the SSA performs a different calculation to adjust the PIA up or down for those who claim early or late.

People who claim benefits before their FRA usually receive lower payments, whereas those who wait until they are 70 receive the highest payment possible.

Because Medicare Part B premiums will be reduced in 2023, you may receive a higher COLA than 8.7% in some cases. These premiums are deducted from your Social Security payment, so if you have already signed up for Medicare, you will have less taken out in 2023 than in 2022.

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This means your COLA could be higher than 8.7%.

However, if you have already begun collecting Social Security but plan to enroll in Medicare for the first time in 2023, your COLA could be less than 8.7%.

Because the Part B premium is now deducted from your monthly Social Security check, it may offset some of the 8.7% COLA.

This may also be the case if, in 2023, you switch from Original Medicare to a Medicare Advantage (MA) plan and choose to deduct the MA costs from your Social Security payment.

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