The 66 million Americans with Social Security receive a significant increase in the cost of living: 8.7%. It will take effect in December, with the first payment in January 2023. It is the largest increase since the 11.2% adjustment in the cost of living (COLA) announced in 1981.
Thursday’s announcement by the Social Security Administration would increase the median monthly benefit by more than $140 per month to about $1,814 for retired employees and dependents, and about $1,480 for disabled employees and dependents from the current $1,362 .
Every last cent of that 8.7% increase is needed. The cost of living index (CPI) has surged in 2022, rising 8.2% for the 12 months ended September. Labor Department.
Read: Social Security COLA is not a bonus
What is behind this inflation? Let me count the ways. Some of it is related to the Russian war in Ukraine, which has squeezed raw materials, pushing prices up worldwide. Here at home, American ranchers say climate change — like rising heat and disappearing water supplies — is causing them to thin their herds, driving up meat prices. And some critics say heavy government spending to help Americans survive during the pandemic has also contributed to inflation.
Then there are the heating prices. Natural gas — which is used to heat most American homes — is up 35% in the past two years, according to Mark Wolfe, executive director of the National Energy Assistance Directors Association. “And supplies are tight, as many utilities have used up their natural gas reserves to generate electricity in the summer.” According to the Energy Information Administration, a federal agency, U.S. households expect an average utility bill of $1,359 this winter.
The concern here is that these kinds of raises — for absolute must-haves like food and energy — will put pressure on millions of Americans who remain heavily dependent for most of their income, if not all. The latest figures from the Social Security Administration show how precarious things are for so many:
From June 2022:
Social security benefits accounted for about 30% of all income for older Americans.
37% of older male recipients and 42% of older female recipients depended on Social Security for 50% or more of their income.
12% of these men and 15% of these women depended on social security for 90% or more of their income.
The math is not difficult here. If Social Security’s COLA is 8.7%, but food and energy have risen more than that, it will undoubtedly mean more pain and difficult choices for millions of older Americans.
But one thing could actually help seniors gain ground on inflation by 2023: the cut in Medicare premiums for many beneficiaries. The decrease applies to Medicare Part B, which provides outpatient medical coverage. After a 14.5% jump from 2021 to 2022 (the increase was intended to help pay for Alzheimer’s treatment Aduhelm), premiums will now fall 3.0% to $164.90 a month. The Part B annual deductible will also drop 3% to $226.
“This is excellent news for seniors and people with disabilities who receive Medicare, most of whom have deducted these premiums directly from their Social Security payments,” said Nancy Altman, president of Social Security Works, a Washington advocacy group.
The good thing about this, Altman notes, is that “in recent years, rising Medicare premiums for many beneficiaries have often used up most or even all of the Social Security increase. That will no longer be the case in 2023.”
White House press secretary Karine Jean-Pierre said Wednesday that the combination of an increase in Social Security and a cut in Medicare premiums is a double benefit for seniors. “We will put more money in their pockets and give them some extra breathing room,” she said.
It’s important to remember that there are tax implications for Social Security earners. The COLA hike (along with wages and interest on certain investments) could push some recipients into a higher tax bracket. Here’s what you need to know:
Single filers who earn $25,000 or less, or couples who earn $32,000 or less, do not pay taxes on their Social Security benefits.
Single filers who earn between $25,000 and $34,000, and couples who earn between $32,000 and $44,000, pay taxes on up to 50% of their benefits.
Single and joint filers who exceed these thresholds pay tax on up to 85% of their benefits.
An easy way to remember this: 15% of Social Security benefits — about $3,200 in 2023 — will always be tax-free.