Back in October, seniors on Social Security got some really excellent news: Benefits will be rising substantially in 2023 thanks to an upcoming 8.7% cost-of-living adjustment (COLA). That marks the largest raise the program has seen in decades.
And here’s some even better news: Since October, the rate of inflation has slowed down compared to where it sat during the year’s third quarter, which is what annual COLAs are based on. So now, seniors on Social Security might land in a position where they’re finally able to gain some buying power.
Sweetening the deal even more is that for the first time in years, the cost of Medicare Part B isn’t rising. Rather, it’s decreasing.
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Seniors enrolled in Medicare and Social Security at the same time have their Part B costs deducted from their benefits directly. In the past, Part B premium hikes have eaten away at seniors’ COLAs. But since Part B isn’t getting more expensive in 2023 but rather is getting less expensive, Medicare enrollees will be in a position to keep their upcoming raise in full.
But while it’s OK to get excited about a larger monthly Social Security check, the reality is that 2023’s generous COLA could come with one major drawback. And it’s one that might leave beneficiaries reeling down the line.
Will higher benefits bring Social Security closer to benefit cuts?
Social Security is facing a pretty serious financial shortfall. In the coming years, it expects to owe more money in benefits than it collects in revenue (its primary source being payroll taxes). And unless lawmakers manage to intervene, the program could be looking at cutting benefits as early as 2035 based on its Trustees’ most recent projections.
But the Trustees put out that estimate before 2023’s Social Security COLA was announced. And now, the fear is that a large increase in benefits could constitute a strain on Social Security’s limited resources, thereby pushing the program even closer to insolvency and leading to benefit cuts at an earlier point than expected.
A harsh reality seniors might have to face
It’s in the best interest of lawmakers to prevent Social Security cuts, because seniors who lose out on a large portion of that income could easily end up plunging into poverty. But as of now, Social Security is looking at benefit cuts as early as 2035. That’s not such a far-off milestone. And yet so far, lawmakers have really taken no meaningful action to prevent benefits from being slashed.
This isn’t to say that they won’t take action once 2035 gets closer, or if an increase in benefit payouts in 2023 changes the Social Security Trustees’ projections in a meaningful way. But benefit cuts are something Social Security beneficiaries need to prepare for — and soon.
Now the good news is that for the first time in years, seniors’ Social Security COLA might actually outpace inflation, making it possible for them to shore up their savings modestly. But if Social Security is forced to cut benefits, a modest lift in savings may not be enough to help seniors get through the financial crisis that would no doubt ensue.
So while it’s easy to point to 2023’s generous COLA as a positive thing, the reality is that we just don’t know if higher benefits will lead to Social Security cuts sooner than anyone wants them.
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