Disappointed With Your 8.7% Social Security COLA? Here’s Why You Shouldn’t Be

Inflation has been battering consumers since the latter part of 2021, and seniors on Social Security have certainly felt that crunch. At the start of 2022, Social Security benefits got a 5.9% cost-of-living adjustment (COLA). But the rate of inflation has well outpaced that 5.9% raise this year, leaving Social Security beneficiaries in a struggle to cover their living costs.

At one point earlier this year, some experts were calling for a 2023 Social Security COLA as high as 11%. Meanwhile, the Social Security Administration just announced that beneficiaries will be in line for an 8.7% COLA next year.

At first glance, that 8.7% raise might read like a disappointment — especially given the much higher numbers that had been tossed around at several points earlier this year. But here's why you ought to be happy with next year's Social Security raise.

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1. It's the largest raise seniors have gotten in decades

When seniors saw their benefits increase by 5.9% at the start of 2022, that COLA was hailed as the largest in decades. Now, 2023's COLA will take over as having that distinction. And while an 8.7% raise is clearly a far cry from an 11% boost, that increase should still help seniors gain some amount of buying power and better manage their expenses.

2. It's an indication that inflation is slowing down

Social Security COLAs are calculated based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is a subset of the more talked-about Consumer Price Index. The fact that next year's COLA is coming in at 8.7% versus 11% means that inflation levels have cooled over the past few months.

To be clear, this doesn't mean that we're done with rampant inflation. But it does mean that inflation didn't end up soaring as badly as some experts thought it might.

It's worth noting that senior advocates have long said that the CPI-W is not a particularly great measure for calculating COLAs. Rather, it would be better for seniors if COLAs were based on a CPI-E — a Consumer Price Index for the Elderly that more accurately reflects the costs Social Security beneficiaries commonly face.

But until that change comes down the pike (if it even happens at all), the CPI-W is the measure the Social Security Administration has to work with. And the fact that seniors aren't getting a double-digit COLA means living costs haven't risen as much as they could've.

3. Seniors should finally get to keep their COLA in full

Seniors who are signed up for Medicare and Social Security at the same time have their Part B premium costs deducted from their benefits automatically. In most years, the cost of Part B increases, so that eats into COLA benefits.

But in 2023, the cost of Medicare Part B is actually decreasing. As such, Social Security recipients should get to keep their entire COLA for the first time in years.

Look at the bright side

It's easy to focus on the fact that next year's Social Security COLA isn't as high as some earlier projections called for. But rather than get caught up in that detail, it's better to focus on the fact that 2023's COLA is still huge and won't be eroded by Medicare premium hikes. Also, it's important to recognize that lower levels of inflation are a good thing for consumers — especially those who get most of their income from Social Security.

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