The money is now flowing. Social Security recipients are seeing a hefty increase in their January payments. It's the biggest "raise" in four decades.
But despite the additional money hitting their bank accounts, many retirees could be worried that it still won't be enough. There's good news on that front, though. Here's why your 2023 Social Security benefits increase might stretch further than you think.
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An understandable concern
The Motley Fool conducted a survey of retirees in late 2022. More than half of the 750 Americans who responded said that the 8.7% Social Security cost-of-living adjustment (COLA) wouldn't be enough to actually keep up with their cost of living.
This concern is understandable. The National Council on Aging (NCOA) reached the same conclusion. In October 2022, the organization released a public statement that said the historic Social Security increase is "inadequate for the millions of older Americans who face skyrocketing housing and healthcare costs across the country."
The Senior Citizens League performed an analysis released in May 2022 that provides support for the pessimistic outlook. This analysis found that inflation has eroded roughly 40% of the buying power provided by Social Security benefits since 2000.
So will the big benefits increase that you've begun to receive be too little to offset your increased cost of living in 2023? The actual story might not be so pessimistic.
Some good news for retirees
Retirees could have a harder time making ends meet in the new year if inflation is too high. That's exactly what happened in 2020 and 2021, with inflation rates outpacing the preceding Social Security COLAs.
However, inflation actually appears to be headed down. The latest monthly inflation report published by the Bureau of Labor Statistics included numbers that should thrill retirees.
The Consumer Price Index for All Urban Consumers (CPI-U) fell 0.1% in December 2022 from the previous month. Over the previous 12 months, the CPI-U rose 6.5%. That's high, but still well below the 8.7% increase that Social Security recipients received for this year.
Social Security COLAs are calculated using another inflation metric called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The December data looked even better for the CPI-W with a 0.5% month-to-month decline. The CPI-W increased by 6.3% over the previous 12 months. Again, that's a good bit lower than the boost in Social Security benefits for retirees this year.
The bottom line is that consumer prices appear to be rising at a slower rate than Social Security benefits have risen. And there's a pretty good chance that inflation will fall even more with the Federal Reserve likely to increase interest rates further.
In addition, Medicare Part B premiums are a little lower in 2023 than they were last year. This premium decrease is due to lower-than-anticipated Medicare spending after the Centers for Medicare and Medicaid Services decided against fully covering Alzheimer's disease drug Aduhelm.
The fly in the ointment
There is a fly in the ointment, though. Social Security COLAs are given after consumer prices have already risen. The big benefits increase you're receiving this year won't help with the higher costs you incurred last year. That ship has already sailed.
Still, a delayed COLA is better than no COLA at all. Your Social Security increase truly could stretch further than you think this year. And the extra dollars could help even more if inflation continues to steadily fall.
