Social Security recipients struggling with higher inflation are likely to get a major boost in their monthly benefits starting next year.
Thanks to the high inflation reading for August, beneficiaries could receive as much as $144 extra per month in 2023, according to the latest estimate from the Senior Citizens League, a nonprofit advocacy group.
The Social Security Administration's annual cost of living adjustment (COLA) formula is based on inflation readings for July, August and September. Even if inflation peaked this summer, price increases have still been significantly higher than in years past.
Mary Johnson, policy analyst and editor at the Senior Citizens League, said she is currently projecting an annual adjustment of 8.7%, which would be the biggest boost to Social Security benefits since 1981.
"A COLA of 8.7% is extremely rare and would be the highest ever received by most Social Security beneficiaries alive today," Johnson said in a statement.
Still, the increase is likely to be inadequate for many beneficiaries, Johnson said. That's because the index that Social Security benefits adjustments are based on — the Consumer Price Index for Urban Wage Earners and Clerical Workers — is weighted heavily toward changes in gas prices. That's an item on which many people who received fixed incomes spend comparatively less money.
"Across the board, retired and disabled Social Security recipients spend a bigger portion of their incomes on healthcare costs, housing, and food and less on gasoline," she said. "Over the past 12 months, they rank food costs as their fastest growing expenditure, housing, and transportation in that order."
The ultimate net benefit to Social Security recipients will also be contingent on how much Medicare Part B premiums increase.
But Johnson said Medicare administrators indicated earlier this year that premium increases next year could be low, or even non-existent.
That's because the most recent increase, 14.5%, has proven to have been unnecessarily large, as it was tied largely to the cost of an Alzheimers drug whose price has since been cut in half.
"The Centers of Medicare and Medicaid Services (CMS) agreed that beneficiaries are being overcharged for their Part B premiums in 2022, [however] beneficiaries won’t get refunds this year," Johnson wrote in a follow-up email. "CMS says it would use the excess premium charges to reduce the Part B premium increase for 2023."
A CMS spokesperson declined to comment. An official announcement on Medicare Part B premium costs is expected this fall.
Johnson said people on fixed incomes have been among those most affected by the 40-year-high inflation rates, which means benefit payments have not kept pace with rising prices this year. As an example, the Senior Citizens League estimates that, based on the inflation rate through July, a $1,656 monthly Social Security benefit is about $58 less than it should be per month, on average.
For most beneficiaries, the coming increase will still fall short of what recipients need to catch up with price increases on food and other consumer goods, Johnson said. Already, 37% of participants surveyed by the Senior Citizens League said they received low-income assistance in 2021. That is more than double the 16% who were receiving needs-based assistance before the pandemic.
"Social Security was never designed to be a sole source of income for people," Johnson said.
The Social Security Administration is expected to announce the 2023 cost of living adjustment in October after the consumer price index data for September is released.