Inflation hit the U.S. economy hard over the past year, but few Americans felt the impact more sharply than the nation's 65 million Social Security beneficiaries. The rising price of gas, groceries, utilities, and medical care made life difficult for those individuals, eating away at the purchasing power of their Social Security benefits. That's especially true because the 5.9% cost-of-living adjustment (COLA) applied to benefits in 2022 dramatically underestimated the impact of inflation.

Fortunately, beneficiaries have received some much-needed good news this month. The Centers for Medicare and Medicaid Services recently announced that the standard Medicare Part B premium will drop 3% to $164.90 per month next year. Additionally, the September inflation report from the Bureau of Labor Statistics -- which was released earlier today -- suggests life might get a little easier next year.

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First, the year-over-year change in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) decelerated to 8.5% in September, down from 8.7% in August, meaning inflation continued to cool last month. Second, the September CPI-W was the last piece of information needed to calculate the Social Security COLA for 2023. The finalized cost-of-living adjustment figure is 8.7%. That is the largest COLA since 1981.

Here's what you need to know.

Social Security benefit amounts for 2023 will be finalized in December

Though we know the official COLA for 2023 now, beneficiaries will have to wait a few months to receive an update. The Social Security Administration will calculate final benefit amounts in December, and COLA notices will be mailed throughout the month detailing the updated benefit payable to Social Security recipients in 2023. Alternatively, most people can view their updated benefit amount in the Message Center of their "my Social Security" account in early December.

Beneficiaries age 65 and older should bear in mind that Medicare Part B premiums are automatically deducted from Social Security payments each month. That will be reflected in the COLA notice and the information provided via the "my Social Security" portal.

Beneficiaries will receive their first COLA-adjusted Social Security checks in January 2023.

Social Security beneficiaries will get a bigger check next year

The Social Security program administers benefits to a variety of individuals, but every beneficiary should expect a bigger check next year. How much bigger depends on Medicare enrollment status. For instance, beneficiaries that don't have Medicare premiums deducted from their Social Security payments can simply multiply their current benefit by 1.087 to determine their updated benefit amount for 2023. But beneficiaries that do have Medicare premiums taken out of their Social Security checks will have to do a little extra math.

Here is a step-by-step guide for those individuals:

Step 1: Add back any Medicare premium for 2022 you have taken out of your Social Security checks into your current benefit amount.

Step 2: Multiply that sum by 1.087.

Step 3: Subtract the premiums to be taken out in 2023 from that figure. The difference is your new benefit amount.

Alternatively, the information below shows how the 8.7% COLA will impact the average benefit paid to retired workers, spouses, survivors, and disabled workers in 2023.

Retired workers: $1,819.51 per month, an extra $145.63

Spouses of retired workers: $904.18 per month, an extra $72.37

Survivors: $1,446.55 per month, an extra $115.78

Disabled workers: $1,481.12 per month, an extra $118.54

As a final caveat, COLAs are designed to protect the buying power of Social Security benefits, but the calculation is based on backwards-looking data. Therefore, COLAs can easily overestimate or underestimate that actual impact of rising prices. That means beneficiaries should budget cautiously and avoid viewing the COLA as a "raise." COLAs are better viewed as reimbursement for the purchasing power that benefits lost over the past year.