It's official. The Social Security Administration (SSA) announced on Thursday that Social Security beneficiaries will receive an 8.7% increase in 2023. This cost-of-living adjustment (COLA) matched recent predictions.

However, the COLA definitely wasn't in line with what Social Security recipients have received in recent years. Instead, it's the biggest Social Security increase in 41 years. So what's next for retirees after this historic adjustment?

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Image source: Getty Images.

First things first

SSA has only announced the next COLA at this point. Retirees and other Social Security recipients won't see the increase in their monthly checks just yet.

However, it won't be long before the additional money begins to roll in. The Social Security benefits increase technically begins in December 2022. The "raise" will show up in retirees' checks starting in January 2023.

As a result of the COLA, the average monthly check for retirees drawing Social Security will increase from $1,672.76 to $1,818.29. The average monthly check for surviving spouses of retirees will increase from $833.02 to $905.49. 

Good news about Medicare 

There's more good news for retirees as well. Medicare Part B premiums will decline in 2023.

The Centers for Medicare and Medicaid Services (CMS) recently announced that the standard monthly Medicare Part B premium will fall from $170.10 to $164.90 next year. This amount applies to anyone filing an individual tax return with modified adjusted gross income of up to $97,000 and anyone filing joint tax returns with modified adjusted gross income of up to $194,000.

Medicare Part B enrollees with higher income levels will pay more than the standard monthly premium. However, even the wealthiest Americans who participate in the federal program will pay less in 2023. The annual deductible for all Medicare Part B beneficiaries regardless of income will also be $7 lower next year -- $226 compared to $233 in 2022. 

These modest reductions were made possible by CMS' decision earlier this year to pay for Alzheimer's disease drug Aduhelm only for Medicare patients enrolled in clinical studies. The hefty Medicare Part B premium increase for 2022 was due in large part to the expected higher costs for the drug, which will now not be realized.

Also, the additional income-related monthly adjustment for Medicare Part D monthly premiums will decline slightly in 2023. Anyone filing an individual tax return with modified adjusted gross income of up to $97,000 or filing joint tax returns with modified adjusted gross income of up to $194,000 still won't have to pay any monthly adjustment. However, the adjustments for higher income levels will fall by $0.20 to $1.50 per month. 

What about next year?

There are two major wild cards for retirees to watch next year. One relates to inflation; the other involves the president and the U.S. Congress.

The main problem with the big Social Security increase on the way is that it probably won't be enough. That's primarily because inflation has already taken its toll on retirees before the extra amount from the next COLA hits their checks.

It's possible that inflation could remain high in 2023 -- perhaps even higher than the adjustment. On the other hand, a sharp decline in inflation would leave retirees with larger monthly checks and lower prices of goods and services. No one knows for sure which scenario will play out, but how much the COLA actually helps next year depends on inflation levels.

The other key question for retirees in 2023 is: What (if any) changes will President Biden and the U.S. Congress make to Social Security and/or Medicare? President Biden hasn't pushed hard for the Social Security changes that he campaigned on in 2020. The outcome of the November congressional elections will determine how likely any changes are made to either federal program in the near term.