It sounds like déjà vu: The next Social Security cost-of-living adjustment could be the biggest percentage increase in 40 years. It was true for 2022, and it's likely to be true again next year.
The Bureau of Labor Statistics reported Wednesday that the consumer price index increased 0.3% in April from the previous month and was up 8.3% over the past 12 months.
Based on the April CPI data, Mary Johnson, Social Security analyst for the Senior Citizens League, projects Social Security benefits could increase by 8.6% in 2023. If current inflationary trends continue through September, the result could be the largest annual cost-of-living increase in Social Security benefits since 1982, when benefits increased by 7.4%.
The official Social Security COLA for 2023 will be announced in October. It's based on the increase in average CPI for the third quarter of 2022 over the previous year’s third quarter.
This year, Social Security benefits increased by 5.9% for more than 65 million recipients.
Although the 2022 COLA boosted the average Social Security benefit by more than $90 per month, to $1,657, for many retirees, a portion of that increase was offset by rising premiums for Medicare Part B. The standard Part B premium rose from $148.50 per month in 2021 to $170.48 per month in 2022. Higher-income retirees pay even more.
A recent survey conducted by the Senior Citizens League found 25% of survey participants reported that after the deduction for Part B Medicare premiums and other automatically deducted health and drug plan premiums, the COLA increased their available Social Security benefit by less than $25 per month. Some higher-income retirees who are subject to income-related monthly adjustment amounts, or IRMAA surcharges, that boost their monthly premiums well above standard rates, found their net Social Security benefits actually declined this year.
While the projected COLA for 2023 may be eye-popping, Johnson said beneficiaries are still suffering a steep loss in buying power because Social Security benefits have failed to keep pace with the rising costs of the goods and services most used by elderly Americans. That inflation has caused Social Security benefits to lose 40% of their buying power since the year 2000, she said.
The ongoing Senior Citizens League study examines typical expenditures for people ages 65 and up, comparing the growth in the prices of these goods and services to the growth in the annual COLA. It includes cost increases in Medicare premiums and out-of-pocket health care costs that aren't tracked by the standard consumer price index the government uses to calculate annual cost-of-living adjustments for Social Security beneficiaries.
Social Security purchasing power tracked by the study plummeted by 10 percentage points over the past year, from a 30% loss of buying power in March 2021 to 40% loss in March 2022. “That’s the deepest loss in buying power since the beginning of this study in 2010,” Johnson said.
While prices rose in almost every spending category, benefits were most affected by sharp increases in energy costs for home heating and gasoline, higher food prices and the steep 14.5% increase in Medicare Part B premiums in January 2022.
The Senior Citizens League study found that since 2000, COLAs have boosted Social Security benefits by a total of 64% while typical senior expenses through March 2022 grew by more than double that rate — 130%.
“Retirees know all too well that Social Security benefits don’t buy as much today as when they first retired,” Johnson said in a statement accompanying her updated study results. “To put it in context, for every $100 of goods or services that retirees bought in 2000, today they would only be able to buy $60 worth.”
The loss in purchasing power is cumulative and grows as retirees age, the study noted. Inflation can cause significant hardships for retirees, including more rapid depletion of their savings, growing debt,and in some cases, deteriorating health conditions as seniors cut back on food and prescription drugs or postpone necessary medical and dental care.
(Questions about new Social Security rules? Find the answers in Mary Beth Franklin’s new 2022 ebook at Maximizing Social Security Benefits)
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