It's hardly a secret that inflation has been wreaking havoc on consumers for well over a year. That's made life especially difficult for people who get the bulk of their income from Social Security.
At the start of 2022, Social Security recipients saw their benefits increase 5.9%. At the time, that cost-of-living adjustment (COLA) was hailed as the largest one to come down the pike in years.
Meanwhile, as inflation has soared, there's been a lot of speculation over Social Security's 2023 COLA. At one point, some experts were projecting a COLA as high as 11%. Inflation data that came in over the summer pretty much quashed that notion, but it still left Social Security recipients wondering how much of a boost they'd be in line for come 2023.
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Well, at long last, we have an answer. Today, the U.S. Bureau of Labor Statistics released September data from the Consumer Price Index. Meanwhile, Social Security COLAs are based on third-quarter data from a subset of that index -- the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). And now that that data is available, we can say with certainty that seniors on Social Security will be in for a nice boost in the coming year.
How does an 8.7% COLA sound to you?
Social Security benefits will increase by 8.7% at the start of 2023. Now if you were hoping for a larger boost than that, you may find that COLA disappointing. But it's still the largest COLA to arrive in decades.
Better yet, for the first time in years, Social Security recipients should get to keep their COLA in full. The reason? Those who are enrolled in Social Security and Medicare at the same time have their Part B premiums deducted from their benefits automatically. When the cost of Part B goes up, recipients wind up with less of a Social Security raise.
In 2023, the cost of Medicare Part B is actually decreasing. The standard monthly Part B premium will fall from $170.10 to $164.90, which means Part B costs won't cut into next year's COLA.
How well will 2023's COLA stack up?
That's the big question, isn't it? At the start of 2022, many Social Security recipients thought they were in a strong position given their 5.9% COLA, only to have the rate of inflation well outpace that raise during the year. Whether next year's COLA actually gives seniors more buying power will hinge on how things pan out on the inflation front.
In that regard, there may be some good news. The Federal Reserve is aggressively hiking up interest rates in an effort to push consumers to put the brakes on spending. Of course, the fear is that rising rates and a decline in spending will fuel a recession. But if consumer spending drops, it could help bridge the supply-demand gap that led to rampant inflation in the first place.
And if the rate of inflation really slows down in 2023, Social Security recipients might get a lot more out of their 8.7% COLA. In fact, for the first time in years, beneficiaries might land in a position where they can actually shore up their savings a bit and buy themselves some financial breathing room down the line.
