When seniors on Social Security found out that their benefits would be rising by 5.9% in 2022, many were happy about it, at first. But then inflation began to surge even more than it did in 2021. And suddenly, that 5.9% cost-of-living adjustment (COLA) was rendered fairly useless.
In fact, the nonpartisan Senior Citizens League reports that Social Security benefits fell short of inflation by 46% this year, on average. And despite a 5.9% COLA, the average beneficiary was short more than $42 per month, and more than $508 for the year.
When we look at inflation data over the past 12 months, it's easy to see why a 5.9% COLA didn't hold up. At one point earlier this year, the rate of inflation surged beyond 9%. And while consumer prices were only up a little over 7% on an annual basis in November ("only" being a relative term), that's still beyond the 5.9% raise seniors received at the start of the year.
But will things get better in 2023 now that Social Security recipients are in line for an even more generous raise? The quick answer is, it depends.
How will 2023's COLA hold up?
In October, the Social Security Administration announced that seniors would be getting an 8.7% COLA in 2023. That's a much more substantial lift than the raise seniors got at the start of 2022.
Whether that 8.7% COLA will help Social Security recipients gain buying power will depend on how inflation trends. Over the past number of months, inflation levels have been slowly dropping. If that continues and the annual rate of inflation dips below 7% and stays there for all of 2023, seniors might finally have a year when their benefits don't fall short. But if inflation starts to surge again, Social Security recipients could face a huge financial crunch like they did this year.
One positive thing about next-year's 8.7% COLA is that the cost of Medicare Part B is shrinking for the first time in a long time. Seniors who are enrolled in Medicare and Social Security at the same time have their Part B premium costs deducted from their benefits. So when Medicare Part B gets more expensive, it can eat into Social Security COLAs.
But in 2023, Medicare enrollees will spend less on Part B, not more. That alone could help their COLA go further.
We'll have to wait and see
Ultimately, we won't know whether 2023's Social Security COLA does a good job of keeping pace with or outpacing inflation for many more months. But if the recent trend of a drop in inflation levels holds, seniors on Social Security might finally have a year when they're not perpetually strapped for cash and stressed out over money matters.
If inflation surprises us by taking a notable dive, Social Security recipients might actually have an opportunity to build up some savings to compensate for future COLAs that don't meet the mark.