With just days remaining in 2022, Social Security retirees will soon receive the largest increase to their monthly benefit checks in more than 40 years.
The Social Security Administration (SSA) implements a cost-of-living adjustment (COLA) in most years to compensate for inflation, with the goal of maintaining the purchasing power of retirees' benefits as prices rise. Due to 2022's unusually high inflation, the SSA in October announced that the 2023 COLA would be 8.7%.
With the average monthly Social Security check for retirees at $1,677 in November, an 8.7% increase would mean an average of $146 more in monthly benefits -- a boost of more than $1,750 per year. But that benefit bump isn't the only positive change coming for retirees next year. Here are two added bonuses they'll enjoy.
1. Lower Medicare premiums
Medicare is the federal health insurance program for people over the age of 65, so it's very relevant right around the time most retirees are claiming Social Security benefits. In addition, with the SSA in charge of Medicare enrollment, Medicare Part B premiums are also deducted from Social Security checks.
Image source: Getty Images.
Medicare Part B covers an array of necessary medical services like ambulance services and medical equipment, as well as some preventative care items such as flu shots and various tests to diagnose other medical issues.
In 2022, Medicare Part B premiums shot up by close to 15%, with the baseline monthly premium rising from $148.50 to $170.10. This was due in part to the expectation that the program would be adding coverage of several extremely expensive new drugs, among them the Alzheimer's treatment Aduhelm. That was expected to lead to a big increase in the Medicare program's total outlays. By law, Medicare Part B premiums each year are supposed to cover 25% of the program's total estimated costs.
But in September, the Centers for Medicare and Medicaid Services reported that its spending came in lower than expected in 2022, which resulted in a larger-than-expected reserve in the Medicare Part B trust fund. As a result, the government will cut Medicare Part B monthly premiums by roughly 3% in 2023, with the baseline premium declining from $170.10 to $164.90. The program's deductibles will also go down. That may not sound like a lot of money, but every little bit helps. And because those premiums are deducted directly from retirees' Social Security checks, this will increase people's monthly benefits even more.
2. Cooling inflation
COLA adjustments were built into the Social Security program to counter the impact of inflation, and 2023's large increase will help retirees make up for the purchasing power their checks lost this year. However, those annual boosts have not quite kept up with the real inflation seniors face, and over time, individual years' small lags add up. A study released by the non-partisan Senior Citizens League earlier this year found that despite the COLA increases, Social Security benefits have lost 40% of their buying power since 2000.
Meanwhile, ongoing high inflation continues to jack up costs everywhere from the grocery store to the pump, putting a real dent in retirees' finances. Even with the benefit hike that's coming in January, the longer inflation runs hot, the more retirees will struggle.
But there are signs that U.S. inflation is cooling. Since inflation as measured by the Consumer Price Index (CPI) peaked at 9.1% year over year in June, it has been steadily declining. In October, the CPI was only up 7.7% year over year, and only rose 0.4% from September. And when November's inflation report came out last week, it showed that prices only rose 0.1% from October, with the CPI up just 7.1% year over year.
That trend in the CPI is good news. And when you consider the more recent interest rate hikes from the Federal Reserve have yet to fully work their way through the economy, it seems likely that inflation will continue to cool in 2023. So next year, retirees will get higher monthly benefit checks, but should see prices rising at increasingly slower rates. That should be a nice change after this year.
