The countdown is on. Within the next six weeks, many Americans will find out a number they’ve been anxiously waiting for.
The Social Security Administration (SSA) plans to announce the cost of living adjustment (COLA) for 2023 in October. While the agency hasn’t set a specific date yet, it’s likely to be sometime around October 13, 2022. That’s when the Bureau of Labor Statistics releases September inflation data that will be used to calculate the COLA.
How big will your Social Security increase be? Here’s what to expect.
Don’t get your hopes up too high
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First, don’t get your hopes up too high. You’ve no doubt seen that some are predicting that the annual Social Security increase will be close to 11%. Maybe it will happen, but don’t count on it.
The nonpartisan organization Committee for a Responsible Federal Budget (CRFB) did project that the Social Security COLA for 2023 could be nearly 11%. The CRFB’s actual estimate was 10.8%. However, this estimate was made a few months ago. It was also the top of a series. The bottom of the range was 7.3%.
But things have changed since the CFRB made those projections. Inflation seems to have peaked. The SSA uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to calculate COLAs. This measure decreased in July from the June level.
There are signs that inflation may be even lower in the third quarter. This is important because SSA uses the average CPI-W from Q3 to compare with the average for the same period in the previous year to determine next year’s COLA.
In particular, fuel prices – a major driver of inflation – have fallen significantly. House prices are also falling for the first time in years. If these trends continue over the next few weeks, your Social Security increase could be lower than many have predicted.
A large increase is still likely
While the next COLA may not be quite as high as some projections, a large increase is still likely. Inflation is not going to disappear overnight.
If we only used the July CPI-W figures from 2021 and 2022, Social Security recipients would expect a 9.1% increase. This would be by far the highest COLA since 1981.
Of course, July is only the first month in the third quarter. The SSA uses the average CPI-W of all three months in Q3. If the inflation measure continues to decline in August and September at the same rate it did from June to July, your Social Security increase will be close to 8.8%. Again, this would be the largest COLA in more than four decades.
Even if inflation falls more sharply, Social Security recipients will likely still see a benefit increase of at least 7%. There has been only one year since 1981 with a COLA of more than that: The increase in 1982 was 7.4%.
Other good news
Retirees can also expect other good news. Medicare Part B premium increases should be much lower than in previous years. There is even a possibility that the rates will drop.
Xavier Becerra, Secretary of the US Department of Health and Human Services (HHS), announced in May that Medicare Part B premiums will be “adjusted downward” in 2023. This adjustment will be made because Medicare has decided not to pay in most not cover cases of Alzheimer’s disease drug Aduhelm. The large Medicare Part B premium increases for 2022 were largely due to the expected cost of this drug.
You’ll still have to wait six weeks or so to find out what the Social Security COLA will be. It may still be several weeks after that for the 2023 Medicare Part B premiums to be announced. But retirees should definitely expect positive news on both fronts.
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