Social Security benefits could get a boost next year. Here’s what to know
Social Security beneficiaries are expected to see an increase in benefits next year as inflation continues to climb at a record-breaking pace, experts say.
A new report from The Senior Citizen’s League suggests that 2023’s cost-of-living-adjustment, or COLA, could see a 10.5% increase based on the June 2022 Consumer Price Index data, Mary Johnson, the league’s social security and medicare policy analyst told McClatchy News.
A 10.5% COLA would bring the average retiree benefit to $1,688, a $175.10 increase.
If inflation continues trending upwards, beneficiaries could see an even bigger jump up to 11.4%. If inflation cools down, however, the COLA adjustment could be smaller, around 9.8%, according to Johnson.
The Committee for a Responsible Budget, a nonpartisan watchdog organization, has made similar projections.
“With no more inflation for the next 3 months, the #SocialSecurity COLA would be 9 percent next year,” the committee’s Head of Policy Marc Goldwein said in a tweet. “On our current course, it will be 11.4 percent!!”
As consumer prices continue to rise, here is what Social Security beneficiaries need to know:
Adjustments for rising prices
Social Security is adjusted annually to account for changes in the cost of living. The Social Security Administration determines the COLA using the Consumer Price Index for Urban Wage Earners and Clerical Workers, a figure that is included in the Bureau of Labor Statistics’ monthly CPI report.
As the economy has recovered from the COVID-19 pandemic and inflation has sky-rocketed, the cost of living has increased, forcing the COLA up, too.
In December 2021, the Social Security Administration enacted a 5.9% COLA, the largest adjustment since 1982. However, inflation has already outpaced this adjustment.
Potential shortcomings
While increases to benefits will help beneficiaries combat rising prices, there are notable downsides to the expected adjustments.
Johnson identified three major shortcomings that boosted benefits could create.
Increases in Medicare: A boosted COLA does not include considerations for increased Medicare fees, which are automatically taken out of Social Security earnings. As premiums rise, the amount deducted increases, too; a change that is not accounted for when the COLA is increased.
COLAs impact income.: As the COLA increases, it changes income thresholds, which in turn determines taxes. Beneficiaries who have not paid taxes on their benefits before may begin being taxed in 2023 if the COLA jumps as expected.
High incomes change Medicare: A significantly large COLA could increase beneficiaries’ income enough that it changes healthcare coverage. Higher income can mean the loss of income adjusted healthcare and prescription coverage or more expensive plans.
Medicare Part B premiums saw a much higher than expected rise in 2022, jumping $21.60 or 14.5% to a monthly fee of $170.10, according to the Centers for Medicare & Medicaid Services.
Without accounting for these changes, a boosted COLA could have damaging effects for beneficiaries, according to Johnson.
Closer to insolvency
Furthermore, a spike in the SSA’s COLA may speed up the program’s impending insolvency, experts say.
The Trustees of the Social Security and Medicare trust funds release an annual funds report, documenting the current and predicted status of the two programs. According to the 2022 report, the programs’ fund that pays retiree and survivor benefits will run out of reserves by 2034. After that, the fund will only be able to pay 77% of scheduled benefits.
An increasing COLA could make the fund run out of reserves much quicker, Maya MacGuineas, the CRFB’s president, told McClatchy News.
Granting beneficiaries more funds now means less funds for future generations, MacGuineas emphasized.
The big picture
Social security beneficiaries should cautiously anticipate a rise in benefits next year.
On the one hand, the estimated 10% COLA will grant greater spending power and allow beneficiaries a better chance at keeping up with inflation.
But there are cons that should not be overlooked, including broader scale pressure on the economy as a whole.
An increase in the COLA “exacerbates the spiral and cycle of inflation,” according to MacGuineas.
In other words, increasing benefits could contribute to even more inflation, giving the economy more reason to fall into a recession, MacGuineas said.
“If purchasing power continues to grow, that means more pressure on fed to raise interest rates.”
Are there signs of recession in the jobs report? Strong June leaves experts hopeful
Pay increases are slowing down, but that might be good thing, experts say. Here’s why
The housing market is changing again. What home buyers need to know
