New government data points to signs that red-hot inflation is starting to cool. But Social Security beneficiaries may still be in for a record high cost-of-living adjustment in 2023.
The Senior Citizens League, a nonpartisan senior group, now estimates Social Security benefits may increase 9.6%, based on Consumer Price Index data released on Wednesday.
That would amount to an extra $158.98 per month for the average retiree benefit of $1,656, according to the group’s calculations.
In comparison, The Senior Citizens League had predicted a 10.5% COLA last month based on hotter than expected CPI data.
The Consumer Price Index , which measures changes in prices for goods and services, rose 8.5% in July over a year ago, a slower pace from previous months as gas prices fell.
A subset of that index, the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, that is used to calculate Social Security’s annual cost-of-living adjustment, increased 9.1% in July over the previous 12 months.
To be sure, The Senior Citizens League’s estimate is still preliminary. The Social Security Administration calculates the annual COLA by determining the percentage change in the CPI-W from the third quarter of the current year to the average from the third quarter of the previous year.
There are still two months of data to go before the official COLA for next year is announced.
Gas prices are one of the big drivers of the CPI-W, according to Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League. Fluctuations in gas prices in the coming two months could affect the final Social Security COLA calculation.
Still, Social Security beneficiaries can still expect a record COLA for next year. If inflation runs hotter than the recent average, the COLA could be 10.1%, according to The Senior Citizens League. If inflation cools, the adjustment could be 9.3%.
Social Security beneficiaries received a record 5.9% COLA in 2022.
But as inflation has climbed this year, that increase has lost its buying power, according to The Senior Citizens League.
This year’s benefit increase has fallen short based on inflation data through July, according to calculations from The Senior Citizens League. The average benefit of $1,656 is short about $58 per month on average and $373.80 to date this year, the group’s calculations found.
A survey conducted in the first quarter by The Senior Citizens League found half of people ages 55 and up dipped into their emergency savings to cope with rising costs. Meanwhile, 47% have visited a food pantry or applied for benefits from the Supplemental Nutrition Assistance Program, or SNAP, and 43% have carried debt on a consumer credit card for more than 90 days.
Older and disabled people who rely on low-income assistance may be at risk for having those benefits trimmed once the extra income from a record-high COLA kicks in, the group’s research has found.
The impact of a record-high cost-of-living adjustment for 2022 was also limited due to higher than normal increases to Medicare Part B premiums.
Medicare Part B premiums, which jumped 14.5% this year, are often deducted directly from Social Security checks.
The average monthly premium is $170.10 per month in 2022, up from $148.50 in 2021.
Much of the increase for this year was due to the cost of an Alzheimer’s drug, Aduhelm, which has since been cut in half.
The savings is expected to be applied to the 2023 Part B premium. However, the Medicare trustees projected in their June annual report that the monthly premium for 2023 will stay the same at $170.10 per month.
One thing the annual COLA measure doesn’t account for is the percentage people pay for prescription drugs in retirement, according to Johnson.
The Inflation Reduction Act, which just passed the Senate, seeks to curb those costs by capping annual out-of-pocket spending at $2,000 per year for Medicare Part D prescription drugs.
“Any help with costs is going to make a big, big difference going forward, especially protections like caps on out-of-pocket spending,” Johnson said.
That legislation has yet to be approved by the House and the president. The $2,000 cap is not slated to go into effect until 2025.
Current projections from the Centers for Medicare and Medicaid Services show the average basic monthly premium may be $31.50 in 2023, down from $32.08 in 2022.
However, the maximum deductible for Part D coverage is projected to increase to $505 in 2023 from $480 this year.
For the median retiree, just 75% of Social Security benefits and 88% of total income are available for non-medical spending, according to recent research from the Center for Retirement Research at Boston College.