For years, seniors on Social Security have been sorely let down by their annual cost-of-living adjustments, or COLAs. In fact, the nonpartisan Senior Citizens League has found that seniors have been steadily losing buying power over the past two decades due to the inadequacy of COLAs as a whole.
This year's COLA certainly falls in line with that finding. In January, seniors on Social Security saw their benefits increase 5.9%. But with inflation hovering around 9% this summer, it's clear that a 5.9% raise hasn't given beneficiaries the buying power they've needed this year.
Meanwhile, initial estimates were calling for a 2023 COLA as high as 11% for Social Security recipients. At this point, it's pretty clear that an 11% raise is off the table. It's more likely that seniors will end up with a COLA in the upper 8% or low 9% range.
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At first, that might still seem like a pretty big letdown. But actually, there's reason to believe that seniors will end up overwhelmingly happy with their 2023 COLA, even if it comes in lower.
Next year's COLA could really hold up nicely
In recent years, seniors on Social Security haven't gotten the boost in buying power from COLAs they were hoping for. But things could change in 2023 if inflation levels continue to dip downward.
Social Security COLAs are based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is a subset of the most often talked-about Consumer Price Index for All Urban Consumers (CPI-U). Because there's a good chance inflation levels will start to drop during the latter part of 2022, seniors might actually gain buying power next year due to their COLA being based on inflation readings from earlier on in the year.
Let's say the CPI-W's third-quarter readings allow for a 9% COLA. If inflation levels fall to 6% or 7% during the final quarter of 2022, seniors won't have a portion of their COLA clawed back. Rather, they'll get to enjoy that raise once 2023 arrives.
Another reason next year's COLA might go further? For the first time in years, the cost of Medicare Part B is not increasing -- it's decreasing.
This year, the standard monthly Part B premium was $170.10. Next year, costs are shrinking by $5.20 a month, leaving seniors on the hook for a standard premium of just $164.90. (Note that higher earners could end up paying more for Part B due to being on the hook for income-related adjustment amounts.)
Seniors who are enrolled in Social Security and Medicare at the same time have their Part B premiums deducted from their benefits automatically. Since the cost of Part B is dropping, seniors should actually get to keep their 2023 Social Security COLA in full.
A reason to celebrate
Although Social Security COLAs have been letting seniors down for years, that could change in 2023. This holds true even if next year's COLA is several notches below the 11% mark experts were calling for earlier on this year.
