As we transition into the cooler months and approach October, a crucial update awaits retirees: the announcement of the 2023 Cost of Living Adjustment (COLA) for Social Security.

“COLA” is an abbreviation for “cost of living adjustment,” a term that refers to the annual increase in Social Security benefits.^[1] Each year, Social Security has a percentage increase designed to offset inflation’s impact.^[1] Over time, the prices of commodities tend to go up, so the purpose of the COLA is to ensure that Social Security keeps pace with these increments.^[1]

The surge of inflation in recent years has resulted in noticeable increases in Social Security benefits.^[2] Seeing a larger figure on Social Security checks can indeed be delightful. However, sometimes, a substantial rise in COLAs implies that living expenses have sharply escalated.^[2] 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%.^[4]

The Reason COLAs Are Decided in October

The determination of COLA hinges on the third quarter’s CPI-W each year.^[2] CPI-W, or “Consumer Price Index for Urban Wage Earners And Clerical Workers,” might sound like a mouthful, but it’s actually quite straightforward.^[3] Essentially, CPI-W serves to track any price increase that may have occurred for everyday items from one year to another.^[2] This includes monitoring fluctuations in costs for things such as gas, groceries, clothes, and more – and gauging how much pricier they’ve become recently.^[3] It’s important to note that the third quarter culminates in September, which explains why seniors only get their COLA update in October. So, keep an eye out for that COLA 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. Navigating the intricate process of planning for your retirement sounds like something a financial professional is suited to handle. So, reach out to our financial professionals today for an evaluation of your retirement timeline and financial situation.