It's hardly a secret that inflation has been hammering consumers since the start of the year. For months on end, consumers have had to dip into their savings and rack up costly debt just to cover their basic needs. And we could be in for many more months of rampant inflation before things settle down.
To some degree, that's good news for seniors on Social Security. When inflation levels soar, benefits tend to increase.
In 2022, Social Security recipients got a 5.9% cost-of-living adjustment, or COLA. But next year's COLA could be far more substantial -- so much so that it leaves seniors with an extra $159 a month to enjoy.
How big will 2023's COLA be?
The latest Consumer Price Index (CPI) reading for July came in at 8.5% on an annual basis. That's a large increase in the cost of consumer goods, though not quite as high as June's reading.
Meanwhile, a subset of the CPI, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), increased 9.1% in July on an annual basis. And it's the CPI-W that's used to determine Social Security raises.
Now we won't know for sure what 2023's COLA looks like until we have complete third quarter CPI-W data. But based on recent numbers, the non-partisan Senior Citizens League is estimating that next year's Social Security raise will come to 9.6%. That would amount to an extra $159 a month for the average beneficiary.
Now to be clear, that doesn't mean seniors will get to keep that raise in full. If Medicare Part B premiums rise, that increase will eat away at seniors' COLA. But even if Medicare costs increase a lot, it's pretty safe to say that seniors will still be left with a decent chunk of their COLA (whereas in previous years with less generous COLAs, Medicare premium hikes have rendered those raises fairly useless).
And also, there's reason to believe Medicare won't go up a lot -- namely, because the program's trustees recently projected that the standard monthly Part B premium will stay the same for 2023. If that happens, seniors could finally come out ahead.
Let's wait and see
The Social Security Administration commonly makes its COLA announcement during the first part of October. Until then, seniors will have to sit tight and hope for a generous increase that allows them to maintain their buying power in the face of inflation.
That said, seniors who are struggling to make ends meet now shouldn't just bank on a large COLA in 2023 to improve their financial outlook. Instead, those in that boat should examine their spending and think about ways to cut back, whether by downsizing their homes or relocating to less expensive parts of the country where Social Security income goes further.
While seniors on Social Security got a decent raise in 2022, so far, inflation has far outpaced it. And the same could happen in 2023 -- even if benefits end up getting a giant boost.