The Social Security Administration announced its cost-of-living adjustment for 2023. Though there’s quite a bit of speculation it will not be enough to combat inflation, the announcement is significant.
Social Security cost-of-living increase for 2023 hits 40-year high
The cost-of-living (COLA) adjustment for 2023 will be 8.7%, according to the Social Security Administration. That's the highest rate of increase since 1981. For the 65 million people who receive a Social Security or Supplemental Security Income (SSI) benefit each month, that’s a substantial increase, averaging $140 per month. That means the average payment of $1,681 will jump to $1,827. The actual amount will depend on what the senior is currently receiving.
The COLA is dependent on the actual increase in the cost of living, often related directly to inflation. Under the Social Security Act, the COLA is based on the Consumer Price Index, an index that tracks the cost of living based on the Department of Labor’s Bureau of Labor Statistics information.
How does the 2023 increase compare to prior years?
The 2023 COLA is markedly higher than most other years. For 2022, the Administration raised the COLA by 5.9%. The increase was just 1.3% for 2021 and 1.6% for 2020.
The last big increase was in 1981 when the Administration set the COLA at 11.2%. In 1980, it was adjusted by 14.3%, the highest since 1975.
Will the Social Security increase be enough for seniors?
While this is a substantial increase for many seniors and those with disabilities, it may not be enough for many households facing increases in housing, groceries, and fuel. Inflation grew as much as 9.1% in June 2022, which could mean even this big increase may not be enough for some seniors to maintain their overall needs.
In the press release announcing the increase, Kilolo Kijakazi, who is the Acting Commissioner for the Social Security Administration, stated, “Medicare premiums are going down, and Social Security benefits are going up in 2023, which will give seniors more peace of mind and breathing room. This year’s substantial Social Security cost-of-living adjustment is the first time in over a decade that Medicare premiums are not rising and shows that we can provide more support to older Americans who count on the benefits they have earned.”
The impact of Medicare changes
Medicare costs are decreasing, which is good news for seniors. Medicare announced in September that it would be reducing premiums by about 3% for most people with a Medicare Part B plan. The typical plan will drop by $5.20 per month, lowering the standard payment most pay to $164.90 per month. Health care costs are a big portion of many seniors’ monthly budgets, and any reduction here is a good thing.
One key concern, though, comes from some higher earners who may get bumped up to the next tax bracket with the COLA increase. Specifically, those who earned over $97,000 as an individual or $194,000 as a couple in 2021 will pay more than the standard Part B premium as well as pay more for Part D drug plans. For some, that could be a concern going forward.
A formula that doesn't work for seniors
Some advocates for seniors say that the formula used to calculate the COLA does not provide a proper reflection of the way seniors spend their money each month. The Consumer Price Index puts a lot of weight on transportation and gas costs, which are typically higher for people who are working. Seniors are spending less on the cost of gas but more on medical costs and putting food on the table.
When does the change take effect?
For those seniors receiving Social Security benefits, the Administration will pay the new amount starting January 2023. For those who receive SSI, those increases will start with the Dec. 30, 2022, payment. Those receiving benefits payments should receive a letter in December providing the exact amount of their increase. It is also possible to log into your My Social Security account to see how much your payment will be.
With inflation climbing to levels that have not happened in more than 40 years, it’s sensible that Social Security benefits should rise for the 65 million Americans receiving payments. Yet, the jump may not be enough to combat inflation, especially if the cost of living continues to rise through 2023 beyond that adjustment. That could squeeze seniors’ budgets, even with the decreased Medicare premiums.
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