An early look at 2023 cost-of-living adjustments and maximum contribution rule

by Calculated risk on 09/13/2022 08:48:00 AM

The BLS reported this morning:

The Consumer Price Index for urban wage earners and book workers (CPI-W) has increased by 8.7 percent over the past 12 months to an index level of 291.629 (1982-84 = 100). For the month, the index was down 0.2 percent before the seasonally adjusted.

CPI-W is the index used to calculate cost of living adjustments (COLA). Calculation dates have changed over time (see Cost of Living Adjustments), but the current calculation uses the three-month average CPI-W in the third quarter (July, August, September) and compares to the average for the previous highest average of Q3 months. Note: This is not a CPI-U title and is not seasonally adjusted (NSA).

• In 2021, the average consumer price index in the third quarter was 268,421.

The third quarter average for 2021 was the highest average for the third quarter, so we just have to compare the third quarter of this year to last year.

Click on the chart for a larger picture.

This graph shows the CPI-W since January 2000. The red lines are the Q3 average of the CPI-W for each year.

Note: The year marked for the account, the adjustment is valid for December of that year (received by recipients in January of the following year).

CPI-W rose 8.7% y/y in August, and although this is early – we need September data – My guess is that COLA will probably be around 8.6% to 8.8% this year, The largest increase since 11.2% in 1981 (and greater than 7.4% in 1982).

Contribution base and benefits

The contribution base will be adjusted using the national average wage index. This is based on a one-year lag. The national average wage index is not available for 2021 yet, but wages will likely rise again in 2021. If wages increase 4% in 2021, the contribution base next year will rise to about $153,000 in 2023 , from 147,000 dollars currently.

Remember – this is an early look. What matters is the average CPI-W, NSA, for all three months in the third quarter (July, August, and September).

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