In a little more than a week, the Social Security Administration should be making a major announcement about changes to the program in 2023. And part of that announcement will be what next year's cost-of-living adjustment (COLA) looks like.
Earlier this year, some experts were calling for a COLA as high as 11%, given how inflation was soaring. At this point, an 11% COLA is looking very unlikely. Rather, seniors may have to settle for a raise in the upper 8% or lower 9% range.
That may seem disappointing on one hand. But here's why a smaller Social Security raise isn't a bad thing at all.
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When less is more
Social Security COLAs are tied directly to inflation. If 2023's COLA comes in at a lower level than earlier estimates called for, it's a sign that inflation is slowing down-- and that's a very good thing for seniors.
Even when Social Security benefits increase substantially, which was the case in 2022, those COLAs often fail to give seniors the buying power they need to comfortably keep up with their expenses. And a big part of that has to do with the way COLAs are calculated.
COLAs are based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But that index doesn't accurately account for senior-specific expenses. As such, it's really an imperfect baseline for establishing annual Social Security COLAs.
But for now, the CPI-W is what we're stuck with. So seniors will have to deal with whatever COLA it allows for.
That said, a smaller COLA does indicate a cooldown on the inflation front. That might buy seniors a fair amount of relief.
In fact, in an ideal scenario, the rate of inflation will continue to drop month after month once seniors' 2023 COLA is already in place. That way, Social Security beneficiaries might end up in a better position to stretch their income.
Lower Medicare premiums could provide relief, too
A slower pace of inflation could make it much easier for seniors to cover their expenses in 2023 -- even if that means ending up with a lower COLA. But one good thing about next year's COLA is that Medicare Part B premium hikes shouldn't end up eating into it.
Seniors who are enrolled in Medicare and Social Security at the same time have their monthly Part B premiums deducted automatically from their benefits. So when Part B costs rise, COLAs lose value.
But next year, the cost of Medicare Part B is actually decreasing for the first time in a long time. So seniors won't have to worry about losing a chunk of the raise they've been so eagerly awaiting.
Stay tuned for an official update
The Social Security Administration is expected to make next year's COLA official on Oct. 13. That's the date we should have a full set of third-quarter data from the CPI-W. If that number comes in lower than anticipated, try to remember that while you may be disappointed, the news certainly isn't all bad.
