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Social Security COLA for 2023 Estimated at 8.7%

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The consumer price index data for August, released Tuesday, shows 8.3% inflation over the past 12 months before a seasonal adjustment and was 0.1% from July to August on a seasonally adjusted basis. In July, prices rose by 8.5% over 12 months and were unchanged from June.

Based on the new data through August, The Senior Citizens League estimates the Social Security cost-of-living adjustment, or COLA, for 2023 could be 8.7%, lower than the 9.6% it predicted last month.

An 8.7% COLA would be the biggest increase since 1981. The adjustment would increase the average retiree benefit of $1,656 by $144.10, according to the league.

When Will the 2023 Social Security COLA Be Announced?

There is only one month of consumer price data left before the Social Security Administration announces the COLA for 2023. The Senior Citizens League expects the SSA to announce it on Oct. 13, after the release of the September consumer price index data.

The Social Security Administration uses average inflation in the third quarter, based on the CPI-W, to calculate the benefit adjustment for the following year.

Mary Johnson, the league’s Social Security and Medicare policy analyst, bases monthly COLA estimates on changes in the consumer price index for urban wage earners and clerical workers, known as the CPI-W.

“A COLA of 8.7% is extremely rare and would be the highest ever received by most Social Security beneficiaries alive today. There were only three other times since the start of automatic adjustments that it was higher (1979-1981),” she said via email.

“COLAs are intended to help maintain the buying power of Social Security benefits when prices rise. They are a permanent increase that will gradually boost the total Social Security income that individuals will receive over the course of their retirement. Without a COLA that adequately keeps pace with inflation, Social Security benefits purchase less and less over time, and that can create hardships especially as older Americans live longer lives in retirement,” said Johnson.

“Based on inflation through August, we calculate that the COLA for August 2023 has fallen short on average by 48%,” she added. “A $1,656 benefit is short about $43.80 per month on average and by a total of $417.60 year to date.”

A Tax Concern

While Social Security COLAs are designed to offer financial relief, they can also result in a higher tax bill.

About 59% of participants in The Senior Citizens League’s 2022 Retirement Survey believe they could be at risk of a higher tax liability for 2022 due to the 5.9% COLA they received this year, according to early results.

In addition, 21% say that until 2022, their household income was below the income thresholds that can make up to 85% of Social Security benefits subject to federal income taxes. This group worries they will pay tax on a portion of their Social Security benefits for the first time in the coming tax season.

A COLA of 8.7% would present similar ongoing increased tax liabilities for next year. The group polled 626 people, 96% of whom currently receive Social Security benefits, to generate the responses on Social Security tax concerns. The surveying is ongoing.

Medicare Premiums

The government tends to announce the Medicare Part B premium and other costs in mid-November. Medicare Part B premiums may not grow by very much in 2023, according to Johnson.

The Medicare Trustees forecast in their 2022 annual report that the standard Part B premium in 2023 would stay the same as it is now, $170.10. The Centers for Medicare and Medicaid Services recently said it would use excess Part B premium charges from this year, determined after a reassessment, to reduce the Part B premium in 2023.

August Inflation Numbers

The gasoline index fell 10.6% in August after a 7.7% decline in July, mostly offsetting increases in the shelter, food and medical care indexes; these areas led the overall rise in the all-prices index for the month, the Bureau of Labor Statistics reported. After falling 4.6% in July, the energy index fell 5% in August, with the gasoline index decline and increases in the electricity and natural gas indexes.

The food index rose 0.8% in August after a 1.1% gain the previous month, the smallest monthly increase in that category since December 2021. The food at home index rose 0.7% in August, with all six major grocery food group indexes increasing, after a 1.3% increase in July, the bureau reported. The food away from home index increased 0.9% in August, slightly more than the previous month.

The index for all items excluding food and energy rose 0.6% in August, a greater increase than in July, the BLS reported. Indexes for shelter, medical care, household furnishings and operations, new vehicles, motor vehicle insurance and education were among those rising dur the month, while airfares, communication and used vehicles were among those that declined.

For the 12 months ended in August, inflation on items excluding food and energy increased 6.3%, a higher increase than the 5.9% logged for the year ending in July.

The BLS stated that over the past 12 months the energy index rose 23.8%, a smaller increase than the 32.9% rise for the year ended in July. The food index gained 11.4% over the same period, the largest increase since the period ending May 1979.

The shelter index rose 0.7% in August, slightly more than the 0.5% in July. For the last 12 months, the shelter index increased 6.2%, contributing about 40% to the overall increase in all items excluding food and energy.