Social Security COLA: What Is the Smallest Amount To Expect in 2023?

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This year’s soaring inflation rate has all but assured that in 2023, Social Security recipients will get their highest cost-of-living adjustment in 41 years. Based on the latest consumer price data, the estimated Social Security COLA for 2023 is 8.7%, according to The Senior Citizens League, a non-partisan seniors advocacy group. If that happens, it will be the biggest annual bump since the 11.2% COLA in 1981.

Even if the 2023 COLA doesn’t end up being as high as 8.7%, you can expect that the smallest possible adjustment will still be very close — probably around 8.5% to 8.6%.

The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers. It is calculated by using the average rate of inflation in the third quarter of the year. When those figures come out, the data for July, August and September will be added together and divided by three to get the average. The 2022 number will then be compared with the third-quarter average of 2021 to determine the percentage of change for 2023.

Technically, the smallest possible COLA is 0%, which has only happened three times since 1975, according to the SSA. For you to get a 0% COLA in 2023, the CPI-W would need to reverse course and plunge by nearly 25% from August to September, Motley Fool reported. The probability of that happening is somewhere between zero and whatever fraction comes closest to zero.

It’s also possible that the CPI-W could match its biggest-ever one-month decline of 2.3%, which would move the 2023 COLA to 7.9%. But again, given recent inflationary trends, the chances of that happening are next to nil.

A more realistic scenario is that the CPI-W in September will decline at a slightly faster rate than the previous two months. As Motley Fool noted, the CPI-W in July fell 0.1% from the previous month, and the August CPI-W slid another 0.2% from July. Following this pattern, the September CPI-W might drop 0.3% month-over-month. If that happens, the COLA for 2023 would be in the neighborhood of 8.6%.

Are You Retirement Ready?

If inflation falls at a rate two times faster than the recent trend, the 2023 Social Security COLA would still be 8.5%. That’s about the lowest you should expect, according to Motley Fool’s estimates.

In any case, you’ll soon know for sure. The SSA plans to announce the 2023 COLA by the middle of October.

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