Following this morning's release of new inflation data from September, we now know that Social Security benefits will see a cost of living adjustment (COLA) of 8.7% in 2023, the largest increase in more than 40 years.
With the average Social Security check for retirees at $1,628.17 in September, that means the typical monthly benefit could see a $141.65 increase next year, boosting it to $1,769.82, or $21,237.85 annually.
The 8.7% COLA increase hit the non-partisan Senior Citizen League's (SCL) latest projection on the nose, which is both good and bad news for retirees. Let me explain.
The good news
The good news is obvious: retirees will see the largest increase in their benefits in more than 40 years, and it's coming after another significant 5.9% COLA increase this year.
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This could help make up for some of retirees' lost purchasing power since the turn of the century, although the SCL has noted in studies that Social Security benefits have lost 40% of their purchasing power since 2000 despite cost-of-living adjustments. While COLAs have grown benefits by 64% since 2000, typical senior expenses have shot up 130% in the same time period.
For instance, out-of-pocket costs for subscription drugs are up 285% since 2000, while other typical expenses like gasoline and homeowner's insurance are up 231% and 164%, respectively.
The other good news is that Medicare part B and part D premiums, which cover health services such as outpatient care and prescription drugs for those who are 65 and older, are slated to decline next year. These premiums are typically deducted from Social Security checks, which will add another little boost next year.
The bad news
The bad news right now is that this morning's inflation data for the month of September didn't show that consumer prices are peaking or slowing -- it was quite the opposite.
The Consumer Price Index (CPI), which tracks a market basket of common consumer goods and services, rose 0.4% in the month of September compared to August's level. That's the highest monthly growth rate in the last three months. The CPI is still up 8.2% year over year.
Notably, price growth for transportation services and medical care services remained high, rising 1.9% and 1% in September, respectively. Prices for shelter and food also stayed hot, while energy prices continued to decline but not at as strong of a pace as in July and August.
Core CPI, which excludes food and energy prices, rose 0.6% in September, which is a 40-year high.
Why its both good and bad
The COLA increase for Social Security benefits was badly needed to make up for the higher cost of living this year due to soaring inflation. Unfortunately, inflation is still high, which means the cost of living is likely to keep rising for the foreseeable future.
It also means the Federal Reserve is almost guaranteed to do another large interest rate hike at its next meeting in November, which could lead to a more severe recession next year.
With prices still rising at an accelerated rate right now, Social Security retirees are not likely to see their purchasing power improve in the near future. But hopefully, if and when inflation peaks and starts to slow, retirees can get themselves back on the right foot financially.
