Nearly nine in 10 Americans aged 65 and older currently receive Social Security benefits, and the program represents an important source of income for the vast majority of those beneficiaries. Unfortunately, soaring inflation has put many seniors in a difficult spot this year. Prices have climbed exceptionally quickly in key spending categories like food, energy, and medical care, reducing the purchasing powering of benefits.
For that reason, many seniors on Social Security are anxiously awaiting two important pieces of information. The first is the cost-of-living adjustment (COLA) for 2023, and the second is the Medicare Part B premium for 2023.
Here's what you need to know about those critical numbers.
The COLA for 2023
The Social Security Administration (SSA) implements a COLA each year to protect the buying power of benefits from inflation. But the SSA does not have a crystal ball, so the system is not perfect. For instance, it enacted a 5.9% COLA in 2022, but inflation has topped 5.9% in every month since that decision was made, meaning seniors effectively took a pay cut this year.
The problem stems from the methodology used to calculate COLAs. They are based on inflation data from the third quarter (i.e., July through September), as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Well, inflation continued to accelerate after the third quarter in 2021 -- in fact, the CPI-W soared 9.8% in June 2022 -- causing the 2022 COLA to fall short.
On the bright side, The Senior Citizens League estimates seniors will see an 8.7% COLA in 2023, the largest COLA in the last 40 years. In that scenario, the average retired worker would receive an extra $145 per month.
However, the official COLA cannot be calculated until September inflation data is available, and the Labor Department won't release that information until Oct. 13. Seniors should expect the SSA to announce a finalized COLA figure for 2023 that same day.
The Medicare Part B premiums for 2023
Generally speaking, Medicare is a government-sponsored health insurance program for individuals aged 65 and older. Social Security beneficiaries are automatically enrolled in Medicare Part A (coverage for inpatient services like hospital visits) and Medicare Part B (coverage for outpatient services like doctor visits).
Most seniors are eligible for free Medicare Part A, provided they have worked and paid Medicare taxes for at least 10 years. But seniors have to pay for Medicare Part B, and the premiums cut deeply into benefits this year. In fact, the standard Medicare Part B premium soared 14.5% to $170.10 in 2022, easily outpacing the 5.9% COLA. As a result, Medicare Part B premiums are currently siphoning away 10% of the average monthly benefit paid to retired workers.
The Center for Medicare & Medicaid Services (CMS) published the 2022 Medicare Part B premiums last November, meaning the 2023 premiums will likely be announced around the same time this year. Fortunately, some experts believe Medicare Part B premiums could actually drop next year, but seniors should wait until CMS makes an official announcement before finalizing their budgets for 2023.
