In 1973, the Social Security Administration enacted the cost-of-living adjustment (COLA). The goal of COLA is to help keep Social Security benefits in line with inflation. In 2022, Social Security saw the most significant COLA increase at 5.9% from 2021. Find Medicare Plans in 3 Easy Steps We can help find the right Medicare plans for you today The cost-of-living adjustment is calculated based on the increase in the consumer price index. Therefore, during the adjustment period, seniors saw an increase based on inflation at the time. In 2023, retirees are estimated to see an even higher COLA increase than in 2022.
In addition to COLA, inflation can impact social security by:
Raising the maximum benefit
Increasing the maximum taxable earnings limit
The maximum Social Security benefit is $4,149 monthly for those who retire at 70 and above. This income limit is directly tied to inflation, so the maximum Social Security benefit amount will also rise.
Additionally, the maximum taxable income for Social Security will rise, meaning higher earners may see higher Social Security taxes. Currently, this amount is set at $147,000. If this raises, so will the taxes required by higher earners.