Some Social Security Beneficiaries Will Enjoy an Unusual Raise in 2023 — and It Has Nothing to Do With COLA | Business News

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Whether you’re already retired or just starting work, chances are Social Security will play a major role in paying the bills during your golden years. When polling national pollsters Gallup surveyed retirees and non-retirees earlier this year, 89% of current retirees said they rely on Social Security as a necessary source of income (to varying degrees), while 84% of non-retirees expect relying on Social Security in some capacity during retirement.

Given these numbers, it’s no surprise that the annual Social Security Cost of Living Adjustment (COLA) is a highly anticipated announcement.

Image source: Getty Images.

The CPI-W has been determining the cost of living (COLA) since 1975.

Social Security’s COLA is the benefit increase that has gone through most years and accounts for inflation. Since Social Security is designed with retired workers in mind, cost-of-living adjustments allow seniors to maintain their current standard of living and (ideally) buy the same amount of goods and services year after year.

Before 1975, the program’s COLA was kind of rubbish. Between 1940, when retirement payments began, and 1975, special legislative sessions of Congress passed 11 cost-of-living adjustments. These benefit increases were completely arbitrary, in the 1940s there was no COLA at all. This was followed by the largest COLA in history in 1950 — a whopping 77%!

Fortunately, things have become a bit more predictable over the past 47 years. Since 1975, the consumer price index for urban wage earners and white-collar workers (CPI-W) has been Social Security’s measure of annual price changes. If the total price for a large predetermined basket of goods and services covering the CPI-W increases from one year to the next – note that only third quarter CPI-W measures are used in the COLA calculation – beneficiaries receive an “increase” in the following year.

The 2023 Social Security COLA will be historic. However, it does not tell the full story.

An unusual “raise” awaits most Social Security beneficiaries in 2023

Following the release of September inflation data by the Bureau of Labor Statistics (i.e., the last data point needed to calculate next year’s COLA), the Social Security Administration announced an 8.7% cost-of-living adjustment for 2023. This 8.7% “increase” is the largest in percentage terms in 41 years. On a nominal dollar basis, it is the largest on record.

But there’s a big difference between how much Social Security checks go up from one year to the next and how much of that increase beneficiaries get to keep. For example, the average retired worker is expected to receive an additional $146 per month next year. But with the cost of food, gas, electricity, medical care, shelter, and so forth, a significant portion of this $146, if not all, will go out the door as expenses. This is a terribly common to prevent.

However, something unusual is about to happen in 2023. For the second time this century (2012 is the other exception), monthly premiums for Medicare Part B will drop – from $170.10 to $164.90. Medicare Part B is the segment responsible for outpatient care, and it is typically deducted directly from a person’s Social Security benefit each month. Lower-than-expected spending on the Alzheimer’s drug Aduhelm resulted in larger reserves from the Supplemental Medical Insurance Trust Fund, which will be passed on to Medicare Part B recipients next year in the form of lower monthly premiums.

This roughly 3% annualized decline may not sound like much, but it’s a big deal considering that medical care inflation has outpaced annual Social Security COLAs for decades. Thanks to Medicare Part B premiums falling in 2023, Social Security beneficiaries enrolled in Medicare will see a real money “raise” (i.e., above and above the rate of inflation) allowing them to keep more of next year’s COLA.

Image source: Getty Images.

It’s not all good news…

Given the historically high inflation consumers have faced this year, this unusual circumstance is a blessing. But don’t count on this becoming the norm.

According to an analysis conducted by the nonpartisan advocacy group The Senior Citizens League, the purchasing power of Social Security income has fallen by 40% since 2000. What used to be able to buy goods and services for $100 can now only be bought for $60. the same goods and services. In 2023, this loss of purchasing power should shrink slightly. However, seniors are still far from being able to make up for most of their lost purchasing power over the past 22 years.

The culprit for this mess is the CPI-W, which tracks the spending patterns of “urban wage earners and white-collar workers.” In other words, people who are unlikely to be seniors or receive a Social Security check. Because the CPI-W tracks inflation poorly for the people who matter most (i.e., seniors), it doesn’t weigh enough for key expenses, such as medical care and shelter. This has resulted in the constant loss of purchasing power for the beneficiaries.

With no clear path to switch off the CPI-W for a more accurate measure of inflation, I fear that the loss of purchasing power that retirees have become accustomed to since the turn of the century is likely to begin again in 2024.

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The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

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