After battling runaway inflation for the past year, retired workers received some good news in October. Social Security benefits will receive an 8.7% cost-of-living adjustment in 2023, marking the fourth largest increase in history. Meanwhile, the standard Medicare Part B premium will drop 3% next year, the second time the premium has fallen in the past two decades.
The big COLA combined with a lower Part B premium is something “we may never see again for the rest of our lives,” Mary Johnson, social security and medicare policy analyst for The Senior Citizens League told the Associated Press. That once-in-a-lifetime event will help all beneficiaries to some degree, but the average retired worker will receive an additional $151.20 per month in Social Security income next year.
Here are the important details.
Social Security benefits will increase by 8.7% in 2023
Social Security COLAs are designed to protect the purchasing power of benefits from inflation. Unfortunately, inflation has remained close to four decades for most of the past year, and the 5.9% COLA applied to Social Security benefits in 2022 failed to fully offset the impact of rising prices. That means retired workers essentially took a pay cut this year, as they had to spend a larger portion of their Social Security checks to cover the higher costs of groceries, electricity and other necessities.
Fortunately, Social Security recipients will get an 8.7% increase next year. That will raise the average benefit for retired workers to $1,827 per month, according to the Social Security Administration. Put another way, the average retired worker will receive an additional $146 per month in Social Security benefits next year.
In fact, inflation has now slowed for four straight months. The consumer price index for urban wage earners and white-collar workers – the metric used to measure inflation when COLAs are calculated – climbed 7.9% in October, up from 8.5% in September. If that number stays below 8.7%, the Social Security COLA for 2023 will restore some of the purchasing power benefits lost over the past year.
Standard Medicare Part B premium drops 3% in 2023
Social Security beneficiaries age 65 and older are automatically enrolled in Original Medicare (Part A and Part B), a government-administered health insurance program. Medicare Part A provides health insurance for hospital visits and is free for most beneficiaries. Medicare Part B provides outpatient insurance for doctor’s appointments and durable medical equipment, and premiums are deducted directly from Social Security checks each month.
This year, the standard Medicare Part B premium rose 14.5% to $170.10 per month, one of the largest price increases in program history. That figure easily surpassed the 5.9% COLA applied to Social Security benefits, meaning retired workers spent a larger portion of their monthly income on medical care this year.
Fortunately, next year’s standard Medicare Part B premium will drop 3% to $164.90 per month, meaning most beneficiaries will save $5.20 on a monthly basis, or $62.40 over the course of the year. That may not seem like much, but when the extra $146 in monthly Social Security income is combined, the average retired worker will get an extra $151.20 per month in 2023, or $1,814.40 for the entire year.
As a final thought, Social Security beneficiaries should continue to budget their money prudently. The economic environment is currently uncertain at best, and any additional income from Social Security could soon disappear if inflation picks up again. If the US does indeed enter a recession, retired workers may not be getting COLA by 2024.