After battling runaway inflation for the past year, retired workers got some good news in October. Social Security benefits will get an 8.7% cost-of-living adjustment (COLA) in 2023, marking the fourth-largest increase in history. Meanwhile, the standard Medicare Part B premium will decrease 3% next year, just the second time the premium has dropped in the last two decades.
The large COLA coupled with a lower Part B premium is something “we may never see again in the rest of our lives,” Mary Johnson, Social Security and Medicare policy analyst for The Senior Citizens League told the Associated Press. That once-in-a-lifetime event will help all beneficiaries to some extent, but the average retired worker will receive an extra $151.20 per month in Social Security income next year.
Here are the important details.
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Social Security benefits will increase 8.7% in 2023
Social Security COLAs are designed to protect the buying power of benefits from inflation. Unfortunately, inflation has remained near a four-decade high for the better part of the past year, and the 5.9% COLA applied to Social Security benefits in 2022 failed to fully offset the impact of rising prices. That means retired workers essentially took a pay cut this year, as they had to spend a greater portion of their Social Security checks to cover the increased cost of groceries, electricity, and other necessities.
Fortunately, Social Security recipients will get an 8.7% raise next year. That will boost the average benefit for retired workers to $1,827 per month, according to the Social Security Administration. Put another way, the average retired worker will receive an additional $146 per month in Social Security benefits next year.
Better yet, inflation has now decelerated for four straight months. The Consumer Price Index for Urban Wage Earners and Clerical Workers — the metric used to measure inflation when COLAs are calculated — climbed 7.9% in October, down from 8.5% in September. If that number stays below 8.7%, Social Security’s 2023 COLA will restore some of the buying power benefits lost in the past year.
The standard Medicare Part B premium will drop 3% in 2023
Social Security beneficiaries age 65 and older are automatically enrolled in Original Medicare (Part A and Part B), a government-run health insurance program. Medicare Part A provides inpatient insurance for hospital visits, and it is free for most beneficiaries. Medicare Part B provides outpatient insurance for doctor appointments and durable medical equipment, and premiums are deducted directly from Social Security checks each month.
This year, the standard Medicare Part B premium increased 14.5% to $170.10 per month, marking one of the largest price hikes in the program’s history. That figure easily topped the 5.9% COLA applied to Social Security benefits, meaning retired workers have spent a greater portion of their monthly income on medical care this year.
Fortunately, the standard Medicare Part B premium will fall 3% to $164.90 per month next year, meaning most beneficiaries will save $5.20 on a monthly basis, or $62.40 over the course of the year. That may not seem like much, but when combined the additional $146 in monthly Social Security income, the average retired worker will get an additional $151.20 per month in 2023, or $1,814.40 for the full year.
As a final thought, Social Security beneficiaries should continue to budget their money cautiously. The economic environment is currently uncertain at best, and any extra Social Security income could disappear in a hurry if inflation reaccelerates. Alternatively, if the U.S. does indeed slip into a recession, retired workers might not receive a COLA in 2024.
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