The wait for more than 65 million Social Security beneficiaries is almost over. The final piece of the puzzle to calculate Social Security's cost of living adjustment will be released by the Bureau of Labor Statistics in 10 days.
Knowing how much Social Security income will go up in 2023 is of paramount importance to older Americans since polls show how vital it is to the financial well-being of most retirees.
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The easiest way to think of Social Security's cost of living adjustment is as a mechanism to account for inflation. If retired workers rely on their Social Security income to buy a certain amount of goods and services, and those goods and services increase in price, we should see benefits increase by a similar amount. Social Security payouts are kept on par with inflation by the COLA.
The program's cost of living adjustment has been determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers since 1975. There are more than a half-dozen major spending categories and a number of subcategories in this index. It's easy to see if inflation or deflation has occurred with the help of these weighted numbers.
In order to calculate Social Security's COLA, you have to take the averageCPI-W reading from the third quarter of the current year and compare it to the averageCPI-W reading from the previous year. The beneficiaries are getting a raise if the current year figure is higher. The amount of a raise for Social Security beneficiaries will be determined by the year-over-year percentage increase in the Q3CPI-W.
There will be a big increase in Social Security checks in the years to come.
The biggest increase to Social Security benefits on record should be enjoyed by all program recipients. Mary Johnson of The Senior Citizens League estimates that the cost of living adjustment will be 8.7%.
If Johnson's forecast is correct, the average retired worker will see an increase to their Social Security check of over $150 a month. The average payouts for disabled workers and survivors are expected to rise in the years to come.
Social Security's cost of living adjustment is usually not all that it is. Next year's benefit increase is expected to be affected by rapidly rising food, shelter, and energy expenses. Consumers have been dealing with historically high inflation, which is why the COLA will be historic.
The purchasing power of a Social Security dollar has fallen by 40% in the last decade, according to an analysis. The inflation that matters to seniors has not been accounted for by theCPI-W. Key expenditures, such as medical care and shelter, are being underweighted because the spending habits of wage earner and clerical workers are tracked. The loss of purchasing power has been going on for 22 years.
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Although Social Security's COLA has led to a number of disappointment over the years, the upcoming raise for 2023 actually comes with a bit of a silver lining.
The premiums, deductible, and coinsurance amounts for Medicare's Part A, Part B, and Part D programs were released last week. Most of Social Security's retired workers enroll in Medicare and have their Part B premiums deducted from their retirement benefits.
You can count the number of times Medicare Part B premiums have fallen on a year-over-year basis if you only have one hand. One of the largest year-over-year increases in Part B premiums in history took place in the year 2022. There will be a reprieve in the year 2023.
Medicare Part B premiums will go down by 3% to $164.90/month in 2023 from $170.10/month in 2022, according to the Centers for Medicare and Medicaid Services. The deductible for Part B beneficiaries will go from $233 to $226 in the next year.
The uncertainties of covering Biogen's expensive Alzheimer's disease drug Aduhelm led to the huge Part B hike. Thanks to lower-than- expected spending on Aduhelm and an increase in the Supplementary Medical Insurance Trust Fund, excess reserves can be used to lower Part B premiums.
The silver lining for tens of millions of aged beneficiaries is that they may get to keep a bit more of their cost of living allowance in 2023, rather than losing it to Part B premium increases and/or inflation.
Don't think that beneficiaries are getting ahead. It's not going to be possible to make up for a 40% loss of purchasing power since 2000 if Social Security's cost-of-living adjustment goes up in the future.
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