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Many seniors on Social Security have struggled to make ends meet this year due to soaring living costs. And we can thank inflation for that. Prices have been elevated since the latter part of 2021, and that’s created a massive cash crunch for older Americans in particular, many of whom get the bulk of their income from Social Security.
Meanwhile, back in October, Social Security recipients got a bit of good news: Based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), benefits are eligible for an 8.7% cost-of-living adjustment (COLA) in 2023. That’s the largest raise to apply to Social Security in decades.
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Of course, once that announcement came out, many financial experts were quick to rain on seniors’ parades and point out that an 8.7% COLA may not go very far if inflation levels hold steady. But recent data points to a notable drop in inflation, which could leave seniors with a lot more buying power in 2023.
Inflation remains high but is cooling off
In November, the Consumer Price Index (which the CPI-W is a subset of) rose 7.1% on an annual basis. Now to be clear, that’s still a very high level of inflation. But we can see that it’s an obvious decline from where inflation levels sat over the summer.
Meanwhile, the CPI-W itself also registered a 7.1% annual increase in November. And compared to October, it decreased by 0.2%.
This is excellent news in the context of an 8.7% COLA. For next year’s Social Security raise to hold up well and result in added buying power for seniors, that COLA needs to outpace inflation. But so far, data indicates that that’s likely to happen.
In fact, if inflation levels continue to shrink, seniors on Social Security might have an opportunity to not only gain buying power but actually shore up their finances by putting some money away into savings. That’s something a lot of beneficiaries no doubt found impossible this year.
Shrinking Medicare costs should help, too
Not only does Social Security’s 2023 COLA so far seem to be outpacing inflation, but 2023 is also the first year in a long time when the cost of Medicare Part B is going down. Seniors who are enrolled in Social Security and Medicare at the same time have their Part B premium costs deducted from their benefits automatically. Most years, Medicare Part B hikes eat into COLAs, leaving seniors with less of a raise left over.
Because Part B isn’t getting more expensive in 2023, seniors in that boat should be able to keep their upcoming COLA in full. And that could really set them for some near-term financial flexibility.
Of course, just because inflation levels have declined over the past few months doesn’t guarantee that pattern will continue. But it’s likely that we will see the rate of inflation slowly but surely creep downward. And that could spell a world of relief for seniors — especially once their 2023 COLA kicks in.
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