USA TODAY International Edition
Social Security checks could see average of $ 1,800 more in 2023
A bigger inflation- boosted Social Security check and, yes, hope for some relief from high prescription- drug costs are on the the horizon. And for many retirees, the relief can’t come quick enough.
Inflation is brutal for lower- income consumers, including millions of retirees who don’t have much savings, as the cost of gas, groceries and rent climb.
Thanks to surging inflation, though, those collecting Social Security benefits can look forward to a payout that’s roughly 8% to 9% higher in 2023, based on early estimates.
Checks could jump $ 150 a month
On average, a retiree could see an extra $ 150 a month – if there’s a 9% cost of living adjustment to Social Security for next year – based on an example for current benefits of $ 1,656 a month. A costof- living adjustment in this example would be an additional $ 1,800 a year.
We must wait until October for the official cost- of- living adjustment.
“This will be one of the highest COLAs ever paid in the history of the program,” predicted Mary Johnson, a Social Security policy analyst for The Senior Citizens League, a nonprofit group.
Based on consumer price index data for the year through July, the COLA adjustment could be around 9.6% if inflation continues at a similar pace.
If inflation heats up, that adjustment could jump to around 10.1%, according to estimates from the Senior Citizens
League.
If inflation cools, the adjustment could end up in the 8% to 9% range, according to estimates.
Only two months of consumer price data – August and September – are left to go for the adjustment to be calculated. September data will be announced Oct. 13 by the U. S. Bureau of Labor Statistics.
A few years had such sizable gains
The inflation adjustment for Social Security benefits was high at 5.9% in 2022. The cost- of- living adjustment began with benefits payable to more than 64 million Social Security beneficiaries in January.
But you’d have to go back to 1979, 1980 and 1981 for any inflation adjust
ment that would be 9% or higher. The highest COLA ever was 14.3% in 1980.
Johnson said the deepest impact of inflation has been felt by older adults who aren’t bringing home a paycheck, even a small one; as well as seniors who don’t have a pension or savings.
“Every COLA is meaningful,” Johnson told the Free Press, “because Social Security is one of the only forms of retirement income that is adjusted for inflation.”
If you need about 10% more money now, for example, to buy the same groceries and other goods you bought a year ago, you’re going to drain whatever savings you have much faster.
While you can trim spending by turning to generic brands, eating less meat or going out for lunch less often, everything we buy isn’t discretionary and cannot be scratched off a shopping list.
Inflation was high last year – and it soared even more in 2022. July did show improvement, as the month- tomonth change was flat, reflecting in part a 7.7% decline in gasoline prices.
Retirees couldn’t keep up with inflation this year though, as many pensions aren’t adjusted for inflation – and many retirees do not have pensions at all.
While an inflation adjustment for Social Security benefits helped this year based on 2021’ s data, for example, it did not reflect the continued inflationary pressures in 2022.
Inflation has been running much hotter than the 5.9% adjustment given in 2022 to retirees and people receiving Supplemental Security Income payments, which are made to those with a disability or blindness who have income and resources below specific limits.
Over the 12 months that ended in July, the Consumer Price Index rose 8.5%. Year over year in June, the inflation index climbed 9.1%.
“The actual COLA we received has fallen short of actual inflation,” Johnson said. Her group estimates the shortfall is roughly $ 58 a month on a $ 1,656 monthly Social Security benefit. Some of that might even out in 2023. “With the next COLA that we get, we may be in a little bit better position,” Johnson said. “I don’t know how much longer inflation will continue at its current pace.”
Richard Johnson, director of the Program on Retirement Policy at the Urban Institute, said no one can say for certain how much Social Security benefits will increase in 2023.
If one assumes that energy prices continue to decline in August and September, which Johnson said seems likely, and other prices continue growing at recent rates, Johnson estimated that next year’s Social Security COLA would be 8.7%.
If energy prices hold steady for the next two months, he said, the COLA could be as high as 9.3%.
“The increase will help seniors a lot, especially those who depend most on Social Security,” he said.
“But the adjustment only gets them back to where they were at the beginning of the year before prices really took off. Every time prices increase in 2023, they’ll continue to fall behind.”
Richard Johnson noted that the costof- living adjustment for Social Security doesn’t perfectly reflect how Social Security beneficiaries spend money to cover their expenses because the index is tied to spending by urban wage earners and clerical workers, who are mostly too young to collect Social Security.
Overall, “seniors have actually fared a bit better in terms of inflation than younger people,” Johnson said.
He noted that the Bureau of Labor Statistics computes an alternative index to reflect spending by people ages 62 and older, known as the CPI for the Elderly, which gives less weight to transportation and more weight to medical care and housing than the standard inflation measure.
Johnson said the CPI for the Elderly has increased slightly less than the standard CPI over the past 10 months because it gives less weight to transportation and energy. Energy prices, of course, have increased tremendously over the past year.
Some seniors benefited as prescription drug prices increased only 2.8% over the past 12 months, Richard Johnson said, much less than the overall inflation rate.
Every extra dollar counts in retirement.
The problem for many households, including those headed by some retirees, is that personal savings are limited, and prices are unlikely to fall even if inflation cools.
About 48% of households headed by someone aged 55 and over had no retirement savings in 2016, based on research released in 2019 by the U. S. Government Accountability Office.
Some of those families could have a pension that could help provide a monthly income, but that same study showed 29% of such households had no pension and no retirement savings.
Inflation creates uncertainty
Not surprisingly, half of retirees who feel less confident about their ability to live comfortably in retirement blamed inflation for triggering more anxiety, according to the 2022 Retirement Confidence Survey conducted by the Employee Benefit Research Institute and Greenwald Research.
Inflation hasn’t been a worry for decades, but now those who are retired or planning for retirement need to consider what higher prices will mean to their 401( k) s or limited savings.
One key point: If you’re at least 62 in 2023, you’d benefit automatically from next year’s COLA increase – even if you have not yet filed to receive Social Security benefits.
Inflation adjustments are baked into future payments each year until you claim benefits, as long as you’re 62 or older in 2023.
The Social Security Administration notes: “You’re eligible for cost- of- living benefit increases starting with the year you become age 62. This is true even if you don’t get benefits until your full retirement age or even age 70.”
Ultimately, getting inflation and some costs under control again would help a great deal.
For retirees, the Inflation Reduction Act of 2022 offers some hope that they’ll soon see relief on drug costs but most changes aren’t immediate.
The new federal law limits out- ofpocket costs for Part D prescription drugs covered under Medicare to $ 2,000, beginning in 2025.
One change in 2023: Beginning next year, the law limits copayments to $ 35 per month per prescription for covered insulin products in Medicare Part D plans, and for insulin furnished through an external insulin infusion pump under Medicare Part B, with no deductible.
Many who receive Medicare are worried about higher premium costs in 2023. Often, retirees are frustrated that their Medicare Part B premiums have been increased aggressively and cut into the inflation adjustment on Social Security benefits.
But fingers crossed, retirees might not face that challenge next year.
Medicare Part B covers doctor visits and outpatient care, as well as some drugs. The changes for any Part B premium would likely be announced in mid- November.
Last November, the Centers Medicare & Medicaid Services announced that the Medicare Part B monthly premium rate would be $ 170.10 in 2022 – a 14.5% increase from the 2021 premium.
This year, it’s possible that the increase would be smaller, or maybe even flat.
In May, Health and Human Services Secretary Xavier Becerra announced that Medicare Part B premiums paid by Medicare beneficiaries for 2022 should be adjusted downward to account for an overestimate in costs attributable to the inclusion of the new Alzheimer’s drug Aduhelm within the Medicare program for reimbursement.
Such an adjustment wasn’t made this year, but many expect this to put a limit on potential hikes in 2023.
No, the pain from inflation isn’t going to vanish. But a few things could soon be working in favor of retirees.