Social Security benefits could give retirees an additional $1,800 next year
Greater inflation-driven control of Social Security and, yes, hope for some relief from the headaches caused by high prescription drug costs is on the horizon. And for many retirees, the cutbacks can’t come fast enough.
Inflation is unforgiving for lower-income consumers, including millions of retirees, who have little or not much savings to tap as the costs of gas, groceries and rent mount.
However, thanks to rising inflation, those who receive Social Security benefits can look forward to a Social Security benefit that is about 8% to 9% higher by 2023, based on early estimates.
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Retirees can get an additional $1,800 per year
On average, a retiree could see about $150 extra per month — if there’s a 9% cost-of-living adjustment to Social Security for next year — based on a sample of current benefits of about $1,656 per month. A cost of living adjustment in this example would be an additional $1,800 per year.
We have to wait until October for the official 2023 cost of living adjustment to be announced by the Social Security Administration.
“This will be one of the highest COLAs ever paid in the history of the program,” predicted Mary Johnson, a Social Security policy analyst for The Senior Citizens League, a nonprofit advocacy group.
Based on consumer price index data for the year through July, the COLA adjustment could be around 9.6% if inflation continued at a similar pace.
If inflation picks up in the coming months, that adjustment could rise slightly to about 10.1%, according to Senior Citizens League estimates.
If inflation cools further in the coming months, the adjustment could taper off and could be estimated at a range of 8% to 9%.
There are only two months of consumer price data — August and September — to calculate the adjustment. September data will be released October 13 by the US Bureau of Labor Statistics.
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A few years had such big gains
The inflation adjustment for Social Security benefits was very high at 5.9% in 2022. The cost of living adjustment began with benefits paid to more than 64 million Social Security beneficiaries in January 2022.
But you would have to go back to 1979, 1980 and 1981 for an inflation adjustment that would be 9% or higher. The highest COLA was 14.3% in 1980.
Johnson said the biggest impact of inflation has been felt by those older adults who don’t take home a paycheck, not even a little one; as well as seniors who have no retirement or savings.
“Every COLA makes sense,” Johnson told the Free Press, “because Social Security is one of the few forms of retirement income that is inflation-adjusted.”
If you now need about 10% more money, for example to buy the exact same groceries and other goods that you bought a year ago, you will lose all your savings much faster.
While you can spend some money turning to generic brands, eating less meat, or eating out less often, everything we buy isn’t discretionary and can’t be scraped off a grocery list.
Inflation was high last year – and so far rose even more in 2022. July showed improvement as the month-over-month change was flat, partly due to a 7.7% drop in gasoline prices in the month.
Retirees haven’t been able to keep up with inflation this year, however, as many pensions have not been adjusted for inflation – and many retirees have no pension at all.
While an inflation adjustment for Social Security benefits helped this year based on 2021 data, for example, it didn’t reflect all of the continued inflationary pressures in 2022.
Inflation has moved at a much faster pace than the 5.9% inflation adjustment given in 2022 to retirees and people receiving additional security income payments, which are made to people with disabilities or blindness who have income and resources below specific limits .
Over the 12 months ending July, the consumer price index rose by 8.5%. In June, the inflation index rose by 9.1% on an annual basis.
“The actual COLA we received has lagged behind actual inflation,” Johnson said. The group estimates the shortfall is about $58 per month on a $1,656 monthly Social Security benefit.
Some of that may even come out a little bit here in 2023.
“With the next COLA we get, we may be in a slightly better position,” she said. “I don’t know how long inflation will last at the current pace.”
Richard Johnson, director of the Urban Institute’s retirement policy program, said no one can say for sure how much Social Security benefits will increase in 2023.
Assuming energy prices continue to fall in August and September as they did in July, which Johnson says seems likely, and other prices continue to rise at recent rates, Johnson estimates that next year’s Social Security COLA would be 8.7%.
If energy prices remain stable over the next two months, COLA could be as high as 9.3%.
“The increase will help seniors a lot, especially those who are most dependent on Social Security,” he said.
“But the adjustment only brings them back to where they were at the beginning of the year before prices really rose. Every time prices go up in 2023, they fall behind.”
Johnson noted that the Social Security cost-of-living adjustment does not perfectly reflect how Social Security beneficiaries spend money to cover their expenses because the index is linked to the expenditure of urban wage earners and white-collar workers, who are usually too young. to collect social security.
Overall, “seniors have actually done a little better in terms of inflation than younger people,” Johnson said.
He noted that the Bureau of Labor Statistics calculates an alternative index to show the spending of people aged 62 and older, known as the CPI for the elderly, which gives less weight to transportation and more weight to medical care and housing than the CPI. standard inflation measure.
Johnson said the CPI for the elderly has risen slightly less than the standard CPI over the past 10 months because it gives less weight to transportation and energy. Energy prices have of course risen enormously in the past year.
Some seniors have benefited, as prescription drug prices rose just 2.8% in the past 12 months, Johnson said, far less than headline inflation.
Every extra dollar counts in retirement.
The problem for many households, including those headed by a number of retirees, is that personal savings are extremely limited to cover all those higher prices in the supermarket and elsewhere, prices that are unlikely to fall even if inflation falls.
About 48% of households headed by someone aged 55 and older had no retirement savings in 2016, according to research published in 2019 by the US Government Accountability Office.
Some of those families could have a pension that can help generate a monthly income, but that same study found that 29% of such households had no pension and no retirement savings.
Inflation creates more uncertainty
Perhaps unsurprisingly, half of retirees who are less confident in their ability to live comfortably in retirement blame inflation for causing more anxiety, according to the 2022 Retirement Confidence Survey conducted by the Employee Benefit Research Institute and Greenwald Research.
Inflation hasn’t been a concern for decades, but now those who are retiring or planning to retire should consider what higher prices will mean for their 401(k)s or limited savings.
An important point: If you are at least 62 or older in 2023, you will automatically benefit from next year’s COLA increase, even if you have not yet applied to receive Social Security benefits.
Inflation adjustments are factored into future payments each year until you claim benefits in 2023 as long as you are age 62 or older.
The Social Security Administration notes, “You’re eligible for cost-of-living increases from the year you turn 62. This applies even if you don’t get benefits until you reach full retirement age or even 70.”
Ultimately, it would help a lot to get inflation and some costs back under control.
For retirees, the Inflation Reduction Act of 2022 offers some hope that they will soon see relief from drug costs, but most of the changes aren’t immediate.
The new federal law limits the out-of-pocket costs for Part D prescription drugs covered by Medicare to $2,000, starting in 2025.
One change in 2023: Starting next year, the new law will limit co-payments to $35 per month per prescription for covered insulin products in Medicare Part D plans and for insulin delivered through an external insulin infusion pump under Medicare Part B, with no deductible.
Many who receive Medicare are concerned about some higher premium costs in 2023. Oftentimes, retirees are frustrated that their Medicare Part B premiums have increased aggressively and have slashed that inflation adjustment of Social Security benefits.
But fingers crossed, retirees may not face the same challenge next year.
Medicare Part B includes doctor visits and outpatient care, as well as some medications. Part B premium changes were likely to be announced in mid-November.
Last November, the Medicare & Medicaid Services Centers announced that the Medicare Part B monthly premium rate would be $170.10 in 2022 — a 14.5% increase from the 2021 premium.
This year it is possible that the increase is smaller or even flat.
In May, Xavier Becerra, secretary of the U.S. Department of Health and Human Services announced that Medicare Part B premiums paid by Medicare beneficiaries would be revised downwards for 2022 to account for an overestimation of costs attributable to the inclusion of the new Alzheimer’s drug Aduhelm in the Medicare program for reimbursement.
No such adjustment has been made this year, but many expect this situation to put a limit on possible increases in 2023.
No, the pain of inflation will not go away. But a few things could soon work for the benefit of retirees and others.
ContactSusan Tompor vIA [email protected]. Follow her on Twitter@tompor. Go to freep.com/specialoffer to subscribe. Rlearn more about business and sign up for our business newsletter.
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