Social Security recipients are on track to receive the highest cost of living increase in more than four decades next year.
Social Security checks get an inflation adjustment every year based on the Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers. In determining the cost of living adjustment, or COLA, the Social Security Administration compares the average figures for July, August and September to the index's average level over the same period a year earlier.
The July data, disclosed Wednesday, rose 9.1% during the past 12 months. That is slightly higher than the headline inflation number, measured by the CPI for all Urban Consumers, which recorded an 8.5% annual increase. The official Social Security COLA will be set following September's data.
If inflation remains at the current level, on average, over the next two months, the approximately 70 million retirees and disabled people who receive Social Security benefits could see their monthly checks rise by about 9.6% in 2023, according to estimates from the nonprofit Senior Citizens League, which advocates for protecting and strengthening Social Security and Medicare benefits.
"The increase is welcome news for retirees." For the government, the higher monthly Social Security checks will mean having to hand over more money. For retirees, however, the increase is welcome news after a year in which the stock and bond markets fell and many retirees on fixed budgets lost purchasing power from rising inflation.
"The increase will be anticipated by millions of retirees, disabled people, widows and survivors receiving Social Security," said Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League.
Next year's COLA increase is on track to be the highest since 1981, when Social Security benefits rose 11.2% to keep pace with inflation. The highest cost-of-living increase on record was 14.3% in 1980.
Social Security benefits rose 5.9% this year a pace that failed to keep pace with inflation.
The Social Security Administration won't announce the official cost of living adjustment for 2023 until October. But today's inflation data provides a strong clue as to what recipients might expect.
The Bureau of Labor Statistics is scheduled to release the September inflation data on Oct. 13. The Social Security Administration generally issues the COLA announcement soon after, Ms. Johnson said.
With a COLA of 9.6%, the average monthly Social Security check for retired workers would rise by about $160 in 2023, to $1,829 in January from $1,669 this year.
Retirees on Medicare were hit especially hard this year because Medicare premiums for Part B, which cover doctor visits and other forms of outpatient care, rose 14.5% to $170.10 a month in 2022 from $148.50 a month in 2021. Those premiums are typically deducted from Social Security checks.
Next year, Medicare recipients are expected to receive a reprieve when it comes to premiums.
A June report by the trustees of Medicare's trust funds projected that Part B premiums will remain stable at $170.10 a month in 2023. The report projects a slight decline in the monthly base premium for Part D prescription drug coverage, to $32.90 in 2023 from $33.37 this year.
Ms. Johnson said that while a higher cost-of-living increase is a positive for retirees, the increase in monthly checks is likely to cause more to pay federal tax on their benefits. Taxpayers with incomes of $25,000 or more a year and married couples with $32,000 or more pay income tax on a portion of their Social Security benefits. The annual income figures include half of an individual or couples' Social Security benefits. Those income thresholds aren't adjusted annually.
Next year's COLA increase is likely to hasten the date of insolvency for the Social security trust fund, according to the "COLA increase to hasten date of insolvency" nonprofit Committee for a Responsible Federal Budget, which predicts that insolvency will occur in 2034, a year earlier than it previously forecast.
"The COLA will be a big expense," said Maya MacGuineas, President of the organization.
By Anne Tergesen, WSJ
August 10, 2022
This content is developed from sources believed to be providing accurate information. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.