Seniors on Social Security can expect to receive much larger checks starting this month, as the 2023 cost-of-living adjustment (COLA) officially takes effect. The average retiree will receive around $140 more per month, thanks to the COLA, though many experts were quick to point out that that money may not go far due to surging inflation.
However, the most recent inflation data has promising news for those on Social Security. It turns out your boost in benefits might go further than you think.
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How does the COLA stack up to inflation?
In 2022, seniors were burned by inflation. The Social Security Administration (SSA) calculates the COLA by tracking the third-quarter Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from year to year.
Based on the third-quarter inflation data in 2021, seniors received a 5.9% COLA in 2022. However, inflation surged far beyond 5.9% throughout the year, causing benefits to lose a substantial amount of buying power. Throughout most of 2022, the CPI-W hovered around 8% to 9%, leading to an 8.7% COLA for 2023.
The good news is that since the COLA was announced in October, inflation has slowed. According to the Bureau of Labor Statistics, the CPI-W increased by just 7.1% in the 12 months ending November 2022. That’s down from 7.7% in October and 8.2% in September.
In other words, while inflation has slowed slightly over the past few months, seniors will still receive a larger-than-average boost in benefits. That means your checks may go further than experts previously thought.
What does this mean for you?
Inflation and COLAs can be complicated and confusing, so if you’re feeling a little lost on how this will affect your benefits, that’s OK. The bottom line is that right now, the COLA is higher than the inflation rate, so your benefits have slightly increased buying power.
Whether that will hold up will depend on how inflation fares throughout 2023. But considering inflation has consistently slowed over the last several months, that’s promising news for retirees.
Another bright spot for seniors is that Medicare Part B costs have decreased for 2023. Typically, these premiums are automatically deducted from your monthly benefit amount, so lower costs can mean larger-than-expected checks.
The not-so-good news
The near term looks promising for seniors: Inflation is slowing, Medicare costs are decreasing, and your COLA may go further than expected. All of those factors can provide much-needed relief for retirees who have been feeling the financial pinch over the past year.
Over the long term, though, there is still some not-so-good news. While Social Security has managed to keep up with inflation so far this year, historically, that hasn’t always been the case. Despite annual COLAs, Social Security benefits have lost around 40% of their buying power since 2000 due to rising inflation, according to a 2022 report from The Senior Citizens League.
In other words, while this-year’s COLA may be able to outpace inflation, in general, benefits today don’t go nearly as far as they did 10 or 20 years ago. As you plan and budget for the future, it may be wise to keep this in mind.
Despite this less-than-ideal news, seniors can still celebrate the historic 2023 COLA. If inflation continues to decline throughout the year, it could go a long way toward making retirement more affordable.
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