Social Security’s cost-of-living adjustment could be in the double digits, thanks to inflation

Social Security's cost-of-living adjustment could be in the double digits, thanks to inflation
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That would add about $175 to retirees’ average monthly benefit, which is currently $1,668, according to The Senior Citizens League, an advocacy group that released the projection Wednesday. But it still may not be enough to cover seniors costs if price increases are not controlled in the coming months.

The estimate is based on the June reading of a measure of inflation that the Social Security Administration uses to calculate the annual cost-of-living adjustment, or COLA. It rose 9.8% in the last 12 months, compared to a 9.1% annual jump in the broader and better-known consumer price index for all urban consumers.

How much more retirees, Americans with disabilities and other beneficiaries will actually receive won’t be determined until the fall. The official adjustment, which the agency publishes in October, is based on average inflation during the third quarter as measured by the Consumer Price Index for Urban Wage Earners and White Collar Workers, known as CPI-W.

If inflation picks up in the next three months, the 2023 adjustment could be 11.4%, the league said. If price increases are moderate, the profit increase could be 9.8%.

In May, the league estimated the adjustment would increase 8.6%, based on inflation at the time.

A separate budget of the Committee for a Responsible Federal Budget, a watchdog group, found that if current inflation trends continue, the adjustment would be 11.4%. If inflation remains at June’s level, the increase would be 9%.

Whatever it is, the adjustment will likely be the largest since the early 1980s, the last time seniors received a double-digit raise.

Bills that exceed benefits

Social Security beneficiaries received a 5.9% fit by 2022. But inflation has outpaced that, leaving many seniors struggling to pay their bills, said Mary Johnson, a policy analyst for the league.

“Inflation has been so high and so much higher than the 5.9% COLA that people received that they have experienced a shortfall in their benefits,” Johnson said. “If people don’t have adequate retirement savings or cash savings that they can easily access, people are putting more into consumer credit cards.”

Half of seniors said they had to spend emergency savings in the past year, according to a survey conducted by the league between January and March. That compares with 36% in a survey conducted last year.

Nearly half said they had visited a Food pantry or applied for food stamps, more than double the proportion in the 2021 survey. And more applied for assistance with medical and prescription drug costs, as well as utility bills and rent.

Social Security benefits have lost 40% of their purchasing power since 2000 due to high inflation, according to another league study. The purchasing power of law fell 10 percentage points between March 2021 and last March, the most since the study began in 2010. The loss is even greater now that inflation has continued to rise this year, Johnson said.

Lowest possible Medicare premiums

However, seniors should get a break when it comes to their Medicare premiums. They had to face a 14.5% increase in Part B premiums for 2022, which raised monthly payments for those with the lowest income to 170.10, compared to 148.50 last year. A key driver of increase it was a projected jump in spending due to an expensive new drug for Alzheimer’s disease, Aduhelm.
Since then, however, the manufacturer of Aduhelm has lowered the price and the Centers for Medicare & Medicaid Services limited coverage of the drug The agency said it would take into account the lower-than-expected spending in the 2023 premium.

He expects the 2023 premium to be lower than this year’s premium, although a final determination will be made in the fall.

Other repercussions

While many older Americans could use the extra money, a big adjustment could actually hurt low-income seniors. That’s because it could push them over income limits to qualify for government aid like food stamps, or require them to start paying taxes on benefits.

Some 39% of seniors receiving assistance said their benefits were reduced due to the sharp adjustment for 2022, while 15% said they lost access to at least one program, according to a league survey.

Also, some experts worry that a big adjustment could deplete Social Security’s trust fund more quickly.

In their annual report, the trustees of the program assumed inflation to be 4.5% in 2022 and 2.3% in 2023, though the actual numbers will likely be well above that, Charles Blahous, senior research strategist at the George Mason University Mercatus Center and a former public trustee of Social Security and Medicare, said at a recent Committee for a Responsible Federal Budget forum.

However, the Social Security trust fund is also expected to benefit from higher payroll tax revenue due to salary increases and from more income tax revenue from higher benefits paid to beneficiaries.
Social Security won’t be able to pay full benefits by 2035 if Congress fails to act, according to the trustees’ latest report.

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