The countdown is on. Within the next six weeks, many Americans will find out a number they've anxiously awaited.
The Social Security Administration (SSA) plans to announce the cost-of-living adjustment (COLA) for 2023 in October. Although the agency hasn't set a specific date yet, somewhere around Oct. 13, 2022, is likely. That's when the Bureau of Labor Statistics releases September inflation data that will be used to calculate the COLA.
How big will your Social Security increase be? Here's what to expect.
Don't set your hopes too high
First of all, don't set your hopes too high. You've no doubt seen some predict that the annual Social Security increase will be close to 11%. Perhaps that will happen, but don't count on it.
The nonpartisan organization Committee for a Responsible Federal Budget (CRFB) did project that the Social Security COLA for 2023 could be nearly 11%. The CRFB's actual estimate was 10.8%. However, this estimate was made a couple of months ago. It was also the upper end of a range. The lower end of the range was 7.3%.
But things have changed since the CFRB made those projections. Inflation appears to have peaked. The SSA uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to calculate COLAs. This metric decreased in July from the June level.
There are signs that inflation could be even lower in the third quarter. That's important, because SSA uses the average CPI-W from Q3 to compare against the average from the same period in the prior year to determine next year's COLA.
In particular, fuel prices -- a major driver of inflation -- have fallen significantly. Housing prices are also coming down for the first time in years. If these trends continue over the next few weeks, your Social Security increase could be lower than many have predicted.
A huge increase is still likely
While the next COLA might not be quite as high as some projections, a huge increase is still likely. Inflation isn't going to disappear overnight.
If we only used the July CPI-W figures from 2021 and 2022, Social Security recipients would be in store for an increase of 9.1%. That would be the highest COLA by far since 1981.
Of course, July is only the first month in the third quarter. The SSA uses the average CPI-W of all three months in Q3. If the inflation measure continues to decline in August and September at the same rate that it did from June to July, your Social Security increase would be close to 8.8%. Again, that would be the biggest COLA in more than four decades.
Even if inflation falls more sharply, Social Security recipients would likely still get a benefit increase of at least 7%. There has been only one year since 1981 with a COLA of more than that: The increase in 1982 was 7.4%.
Some other good news
Retirees could also be in store for some other good news. Medicare Part B premium increases should be much lower than in previous years. There's even a possibility that the rates will decrease.
In May, U.S. Department of Health and Human Services (HHS) Secretary Xavier Becerra announced that Medicare Part B premiums should be "adjusted downward" in 2023. This adjustment will be made because Medicare decided not to cover Alzheimer's disease drug Aduhelm in most cases. The large Medicare Part B premium increases for 2022 were largely due to the anticipated costs of this drug.
You'll still have to wait six weeks or so to find out what the Social Security COLA will be. It could be another few weeks after that for the 2023 Medicare Part B premiums to be announced. But retirees should definitely expect positive news on both fronts.