Social Security Announces 8.7% COLA for 2023 | InvestmentNews

On October 13, 2022, the Social Security Administration made an announcement retirees had been waiting on all year: benefits would rise 8.7% in 2023, the largest cost-of-living adjustment in more than four decades. Mary Beth Franklin, the longtime Social Security columnist at InvestmentNews, covered the news the day it broke in her article "Social Security announces 8.7% COLA for 2023".

This post originally appeared on the IRMAA Certified Planner news feed in December 2022 as a pointer to Franklin's reporting, because the story mattered far beyond the headline number. Buried in the details were changes to Medicare Part B premiums, the Social Security taxable wage base, and the IRMAA income thresholds — all of which land squarely in a financial advisor's lap.

Below is a look at what the 8.7% COLA actually meant in practice, with the 2023 figures preserved as they stood at the time. For the income thresholds that applied that year, see our 2023 IRMAA brackets reference.

An 8.7% raise was extraordinary by modern standards. For comparison, the COLA was 5.9% in 2022, 1.3% in 2021, and 1.6% in 2020 — and in several years of the 2010s it was zero. You had to go back to 1981, when the adjustment hit 11.2%, to find a bigger one.

The reason was simple: inflation. The COLA is calculated from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The SSA compares the average CPI-W for the third quarter of one year against the third quarter of the prior year, and the percentage increase becomes the following January's benefit adjustment. The third quarter of 2022 captured some of the fastest price growth in forty years, and the 8.7% figure fell straight out of that math.

• The 8.7% COLA took effect with benefits payable in January 2023.
• The average retired worker's check rose by roughly $146 per month, to about $1,827.
• More than 65 million Social Security beneficiaries were affected, along with SSI recipients.

For retirees who had watched grocery and energy bills climb all year, the raise was welcome relief. But as Franklin's reporting made clear, the COLA never arrives in isolation — Medicare premiums, payroll taxes, and income thresholds all reset at the same time.

One of the most important points in the InvestmentNews coverage was easy to miss: 2023 was one of the rare years when Medicare Part B premiums went down while benefits went up. The standard monthly Part B premium fell from $170.10 in 2022 to $164.90 in 2023, and the annual Part B deductible dropped from $233 to $226, per the CMS announcement.

Why does that matter so much? Because most retirees have their Part B premium deducted directly from their Social Security check. In many years, a chunk of the COLA is quietly eaten by a higher premium before the retiree ever sees it. In 2023, the opposite happened: the full 8.7% raise arrived and the premium deduction shrank by $5.20 a month, so net checks grew by more than the COLA alone.

The premium decrease had its own backstory. The 2022 premium had been set unusually high partly to cover the anticipated cost of a new Alzheimer's drug. When Medicare limited coverage of the drug and its price was cut, CMS passed the unspent margin back to beneficiaries in the 2023 premium. We cover the details in our 2023 Medicare Part B premiums guide.

For higher-income beneficiaries, of course, $164.90 was only the starting point — IRMAA surcharges stacked on top of the standard premium at every bracket. More on that below.

The COLA announcement wasn't only good news for benefit recipients — it also reset the numbers for people still working. The maximum amount of earnings subject to Social Security payroll tax rose from $147,000 in 2022 to $160,200 in 2023, a jump of $13,200. Franklin noted in her article that workers earning at or above the new cap would pay an extra $1,009.80 in FICA taxes in 2023 compared with the year before.

We break down how the wage base works — and why it rises with average wages rather than the CPI-W — in our 2023 OASDI limit guide.

The retirement earnings test limits moved up as well. In 2023, beneficiaries who claimed before full retirement age could earn up to $21,240 before benefits were temporarily withheld, and those reaching full retirement age during the year could earn up to $56,520. See our 2023 Social Security earnings limit page for how the withholding math works.

Here's the angle that made this story worth flagging for advisors in the first place. IRMAA — the Income-Related Monthly Adjustment Amount — is the surcharge that higher-income Medicare beneficiaries pay on top of their Part B and Part D premiums. It's determined by your modified adjusted gross income from two years prior, a mechanism we walk through in how IRMAA is calculated.

For 2023, the IRMAA thresholds moved up meaningfully. The first surcharge tier began at $97,000 for single filers and $194,000 for married couples filing jointly — up from $91,000 and $182,000 in 2022. That inflation adjustment gave some breathing room to clients hovering near the first bracket. The full tier-by-tier detail is in our 2023 IRMAA brackets table, and you can trace how the thresholds have moved over time in our historical IRMAA brackets archive.

But there was a subtler point for planners. A COLA doesn't change your IRMAA bracket directly — the surcharge looks at MAGI, not at your benefit raise per se. What an 8.7% increase does do is push more Social Security income into the tax calculation. Up to 85% of benefits can be taxable, and because the thresholds for taxing benefits are not inflation-indexed, a large COLA nudges more of a client's benefit into taxable income — which flows into the MAGI that determines IRMAA two years later.

• 2023 IRMAA was based on 2021 tax returns — the 8.7% COLA had no effect on that year's determination.
• The bigger 2023 benefit fed into 2023 MAGI, which set 2025 IRMAA — a two-year echo that catches many households off guard.
• Clients whose income dropped after the lookback year — retirement, divorce, death of a spouse — could appeal using Form SSA-44. Our IRMAA appeal guide covers the process.

Looking back, the 8.7% COLA for 2023 stands as the high-water mark of the post-pandemic inflation era. The adjustments that followed were far smaller — a reminder that COLAs track inflation rather than outpace it, and that a big raise one year usually means prices already rose just as fast the year before. You can see where things stand today on our COLA 2025 page.

For advisors, the episode is a compact case study in why Social Security, Medicare, and tax planning can't be handled in separate silos. One announcement moved benefit checks, Part B premiums, payroll taxes, earnings-test limits, and IRMAA thresholds all at once — and the income effects rippled into surcharge determinations two years later. Coverage like Mary Beth Franklin's at InvestmentNews is where many advisors first connected those dots.

RetirementAdvisorPro models exactly these interactions — COLA assumptions, Medicare premiums, and the two-year IRMAA lookback — inside a single retirement income plan, so a headline like "8.7% COLA" turns into concrete client guidance instead of a scramble.