2 Reasons Your 2023 Social Security COLA Could Hold Up Better Than Expected

In October, seniors on Social Security got some seemingly good news — their benefits will be rising by 8.7% in 2023. That increase well outpaces the 5.9% cost-of-living adjustment (COLA) beneficiaries got in 2022.

But a recent Motley Fool study shows that more than half of retired Americans feel that next year’s 8.7% COLA won’t be enough to help Social Security recipients keep pace with inflation or gain buying power in light of it. And given the way previous COLAs have failed seniors in the past, it’s easy to see why so many retirees feel this way.

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Just look at what happened in 2022. Seniors on Social Security saw their benefits rise by 5.9% at the start of the year. But with inflation exceeding 9% earlier this year, it’s clear that 5.9% boost didn’t help beneficiaries keep up with rising living costs.

Next year’s 8.7% COLA is shaping up to be different, though. Here are two reasons it could hold up nicely when previous COLAs haven’t.

1. Inflation seems to be cooling

Annual Social Security COLAs are calculated based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). During the third quarter of the year, the CPI-W was up enough to warrant an 8.7% raise for seniors in 2023. But since that COLA was announced, the CPI-W has come down.

In November, it rose just 7.1% on an annual basis (“just” being a relative term, of course). And there’s reason to believe the pace of inflation will continue to slow month after month in 2023. If that happens, the raise seniors get will beat inflation, giving them more buying power for the first time in a long time.

2. Medicare Part B isn’t getting more expensive

Usually, the cost of Medicare Part B rises from one year to the next. But that’s not happening in 2023. Rather, seniors who are enrolled in Part B will pay less for their monthly premiums.

Here’s why that’s important. Seniors on Medicare who receive Social Security have their Part B premium costs deducted from their monthly benefits automatically. In the past, Part B premium hikes have eaten into COLAs, but that won’t be happening in 2023. Rather, Social Security beneficiaries on Medicare will get to keep their raise in full.

Now to be clear, this isn’t to say that seniors won’t face higher Medicare costs overall. Some may be looking at higher Part D premiums. And several costs under Part A are increasing in the new year, such as the deductible patients have to cover for a hospital stay.

But lower Medicare Part B premiums will allow seniors to get more oomph out of their Social Security COLA. And that could help offset other rising healthcare costs.

All told, 2023 could be a better year, financially speaking, for seniors on Social Security than 2022. And while the CPI-W remains an imperfect measure for calculating Social Security COLAs, this time around, the raise seniors are getting may have finally met the mark.

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