The countdown has begun. Within the next six weeks, many Americans will discover a song they’ve been eagerly waiting for.
The Social Security Administration (SSA) plans to announce the 2023 Cost of Living Adjustment (COLA) adjustment in October. While the bureau hasn’t set a specific date yet, it’s likely sometime around October 13, 2022. That’s when the Bureau of Labor Statistics releases September inflation data that will be used to calculate the COLA.
How big will your Social Security increase be? This is what you can expect.
Don’t set your expectations too high
First of all, don’t set your expectations too high. You have no doubt seen some predict that the annual Social Security increase will be close to 11%. Maybe it will, but don’t count on it.
The impartial Organizing Committee for a Responsible Federal Budget (CRFB) did project that Social Security’s COLA could be nearly 11% by 2023. The CRFB’s actual estimate was 10.8%. However, this estimate was made a few months ago. It was also the top of a series. The bottom of the bandwidth was 7.3%.
But things have changed since the CFRB made those projections. Inflation seems to have reached its peak. The SSA uses the Consumer Price Index for Urban Wages and Employees (CPI-W) to calculate COLAs. This statistic decreased in July compared to June.
There are signs that inflation could be even lower in the third quarter. That’s important, because SSA uses the Q3 average CPI-W to compare with the previous year’s average of the same period to determine next year’s COLA.
In particular, fuel prices – a major driver of inflation – have fallen significantly. House prices are also falling for the first time in years. If these trends continue in the coming weeks, your Social Security increase could turn out lower than many predicted.
Huge increase is still likely
While the next COLA may not be as high as some forecasts, a huge surge is still likely. Inflation will not disappear overnight.
Using only the July 2021 and 2022 CPI-W figures, Social Security recipients would expect a 9.1% increase. That would be by far the highest COLA since 1981.
July is of course only the first month of the third quarter. The SSA uses the average CPI-W of all three months in the third quarter. If the inflation measure continues to fall at the same rate in August and September as it did from June to July, your Social Security increase would be close to 8.8%. Again, that would be the largest COLA in more than four decades.
Even if inflation fell more sharply, Social Security recipients would likely still receive a benefit increase of at least 7%. Since 1981, there has only been one year with a COLA greater than that: the increase in 1982 was 7.4%.
Other good news
Retirees can also expect other good news. Medicare Part B premium increases should be much lower than in previous years. There is even a possibility that the rates will fall.
In May, Xavier Becerra, secretary of the U.S. Department of Health and Human Services (HHS), announced that Medicare Part B premiums “should be revised downwards” by 2023. The large Medicare Part B premium increases for 2022 were largely due to the expected cost of this drug.
You’ll have to wait about six more weeks to find out what the Social Security COLA will be. It could be a few more weeks after that before the Medicare Part B premiums for 2023 are announced. But retirees can certainly expect positive news on both fronts.
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