Those who receive Social Security will soon be going to find out what their new monthly benefits will be in the year 2023 after the cost-of-living adjustment (COLA) of 8.7% comes into place. The Social Security Administration will start distributing recipients COLA notices in December with information about the amounts of their payments for the next year. Why not multiply your present payment by 8.7% instead of waiting for the SSA to give you the new amount? But things don’t work like that. There will be some payment increases that are lower than 8.7% and some that are larger.
The primary insurance amount (PIA) that the COLA is applied to, instead of your present benefit, which is not sometimes the same, is the reason for this. The PIA is the benefit you would receive if you chose to start getting retirement benefits at your normal or full retirement age, according to the SSA. At this age, neither the benefit for early retirement nor the reward for delayed retirement is increased.
The PIA formula appears to be something you’d learn in a calculus class in college. According to the SSA’s website, it is based on the total of “three different percentages of sections of average indexed monthly earnings.” The portions are calculated by the year the recipient became 62, became permanently disabled before turning 62, or passed away before turning 62.
The age at which you start receiving Social Security retirement payments has a major effect on your COLA. Not everyone waits until they reach their full retirement age (FRA), which is officially 66 or 67, depending on when they were born, according to the report of Motley Fool. Your PIA and monthly payment may be equal if you wait till your FRA to apply for benefits.
Because the cost of Medicare Part B will decrease in 2023, you can sometimes receive a COLA that is larger than 8.7%. If you have already registered in Medicare, the premiums will be collected from your Social Security benefit in 2023 rather than 2022, leading to a smaller payment. As a result, your COLA can be more than 8.7%.