Social security beneficiaries received the largest cost-of living adjustment in 40 years, a 5.9% increase to their monthly checks in 2022.

Early estimates suggest that the next-year’s annual adjustment might even reach 8%. This is despite last week’s annual Social Security trustees report indicating a 3.8% increase for 2023.

“Looking at CPI-W trends this year, it’s likely that we will have a COLA closer than 8% or 3.8%,” Stephen Goss (chief actuary at Social Security Administration) said at a briefing about the trustees report held by the Bipartisan Center last week. CPI-W is the Consumer Price Index For Urban Wage Earners and Clerical Workers, which is one subset of a larger measure for price changes for goods and/or services.

Data through February is used to calculate the 3.8% COLA projections for next year. The potential for an increase in inflation next year is higher because of high inflation.

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Goss stated that this was good news for beneficiaries currently entitled to benefits for the year. Their benefit will be increased by a substantial amount.

The COLA 2023 could fluctuate, so be aware that it may not be formally announced until later in the year. Inflation will be a major factor.

Social Security’s annual COLA can be determined by comparing CPI-W data for the 3rd quarter of current year with the 3rd quarter of previous year.

The COLA 2023 will therefore be affected by the inflation rate in July, August, and September.

Social Security Administration data shows that an 8.8% COLA is the greatest increase in years. An 11.2% increase was announced in 1981 by the Federal Agency, which was the last announcement of a greater annual bump.

According to Goss, a record-high COLA might be compensated by an increase in the average wage.

The trustees had projected that wages would rise by 5.6% in 2021. However, data from W-2s so far suggests it will increase to around 8%.

The COLA as well as the average wage levels have risen more than expected.

Goss explained that the two tend to complement each other in terms impacting the solvency and program. “We’re not expecting that to have a significant impact,” he said.

Some experts worry that the COLA will be record-breaking next year, which could lead to a decrease in program funds.

Just released annual trustees reports showed a better outlook for trust funds that the program uses to pay its benefits. Now, it is projected that the depletion date for both assets will occur in 2035. This is one year more than what was predicted last year. At that time, 80 percent of the benefits will be paid.

An even larger COLA would put more pressure on the already insolvent program, according to Maya MacGuineas (president of the Committee for a Responsible Federal Budget), a nonpartisan, non-profit organisation.

MacGuineas explained that the cost of this program will be so high, it may bring insolvency a year faster.

She stated that Congress would have to take action to fix the program.

MacGuineas stated that “there’s no member of Congress who should examine this report and say, ‘Oh! I know the best way to act is to do nothing.’