Inflation has hovered near a four-decade high for the better part of the past year, driving double-digit price increases in necessities like groceries, gasoline, and electricity. To make matters worse, the standard Medicare Part B premium received one of the largest price hikes in history this year. Those events have eaten away at the buying power of Social Security benefits, making life difficult for millions of retired Americans.
Fortunately, changes to Social Security and Medicare in 2023 should ease the burden. Here are two reasons retired workers will receive a bigger Social Security check next year.
1. An unusually large cost-of-living adjustment for Social Security benefits
The Social Security Administration (SSA) implements an annual cost-of-living adjustment (COLA) to keep benefits aligned with rising prices. After suffering the worst bout of inflation in four decades in 2022, it should come as no surprise that beneficiaries will get the largest COLA in four decades in 2023. Specifically, Social Security benefits will increase by 8.7% next year, marking the biggest raise since 1982.
How will that impact Social Security checks? The average retired worker will receive an extra $146 per month next year, according to the SSA, but that figure will vary from person to person. For instance, anyone that received the maximum monthly Social Security benefit of $4,194 in 2022 will get an extra $365 each month in 2023.
Fortunately, anyone can estimate how the 8.7% COLA will impact their monthly Social Security check by multiplying their current benefit by 1.087. Alternatively, the SSA will send COLA notices by mail in December detailing updated benefit information for 2023. Beneficiaries can also view the COLA notice in the Message Center of their my Social Security account.
2. A rare decrease in the standard Medicare Part B premium
Most people become eligible for Medicare at age 65, three years after they reach eligibility for Social Security retirement benefits. Medicare Part A covers inpatient care in hospitals and skilled nursing facilities, while Medicare Part B covers outpatient care, durable medical equipment, and some preventative services like vaccines. Most people get Part A for free, but beneficiaries must pay a premium for Part B, and those premiums are deducted directly from monthly Social Security checks.
To that end, when the standard Part B premium jumped 14.5% to $170.10 per month in 2022, it put a sizable dent in the Social Security benefits paid to retired workers. But the exact opposite will happen next year. The standard Part B premium will fall 3% to $164.90 per month -- marking only the second decrease in the last two decades. Most Social Security beneficiaries over age 65 will save $5.20 per month on Part B coverage next year.
The downside to a bigger Social Security check
On the whole, the unusually large Social Security COLA coupled with the rare decrease in Medicare Part B premiums is good news for retired workers. A bigger Social Security check in 2023 could help restore some of the buying power benefits lost in 2022. But there is a downside. A bigger Social Security check in 2023 will also mean a bigger tax bill for some beneficiaries when they file their 2023 tax returns in early 2024.
