Senior citizens and other Social Security recipients will begin receiving a larger monthly benefit starting next month as a result of an 8.7% annual cost-of-living adjustment designed to help them cope with high inflation.
The largest increase in more than 40 years will increase retirees’ monthly payments by more than $140, to an estimated average of $1,827 in 2023.
Because it is based on an inflation metric from August to October, which was also near 40-year highs, the adjustment is the largest that most current beneficiaries have ever seen. Inflation has slowed slightly since then, but prices remain high.
“I’m sure everyone is waiting with bated breath because prices are still sky-high,” said Mary Johnson, a Social Security and Medicare policy analyst at the advocacy group The Senior Citizens League. “Just buying food to feed people during the holidays will be a huge challenge.”
The increase will benefit approximately 70 million people, following a 5.9% adjustment for 2022.
Many elderly people rely heavily on Social Security. According to the Social Security Administration, 42% of elderly women and 37% of elderly men rely on monthly payments for at least half of their income.
The timing of the increased payment is determined by the recipients’ ages and birth dates. Those who received Social Security benefits prior to May 1997 receive their monthly benefit on the third of every month. Those born between the 1st and 10th of the month receive it on the second Wednesday, while those born between the 11th and 20th and 21st to 31st of the month receive it on the third and fourth Wednesdays, respectively.
Still falling behind.
Even though recipients received a sizable increase this year, inflation eroded the benefit.
According to Johnson, the increase fell short of actual inflation by more than $42 per month, or roughly $508 for the year.
Many retirees have had to rely on their savings or government assistance. According to recent surveys by The Senior Citizens League, one-third of seniors reported signing up for food stamps or visiting a food pantry in the previous 12 months, up from 22% in 2020. In addition, 17% have applied for heating assistance, up from 10% in 2020.
This is not a new issue. Benefits have not kept pace with rising living costs for years, even with annual adjustments.
According to a study released earlier this year by the league, inflation has caused Social Security payments to lose 40% of their purchasing power since 2000. To maintain the same purchasing power as in 2000, monthly benefits would need to be increased by $540.
Medicare premiums will be reduced.
The Centers for Medicare and Medicaid Services announced in the fall that senior citizens’ Medicare Part B premiums will be reduced in 2023, the first time in more than a decade that the bill will be lower than the previous year. It is only the fourth time that premiums have fallen since Medicare was established in 1965.
Monthly premiums will be $164.90 in 2023, a $5.20 decrease from 2022.
The decrease comes after a significant increase in 2022 premiums, which increased the standard monthly premium to $170.10, up from $148.50 in 2021. The anticipated increase in spending due to a costly new Alzheimer’s disease drug, Aduhelm, was a key driver of the 2022 increase. However, Aduhelm’s manufacturer has reduced the price, and the Centers for Medicare and Medicaid Services has limited the drug’s coverage.
Also, spending on other Part B items and services was lower than expected, resulting in much larger reserves in the Part B trust fund, allowing the agency to limit future premium increases.
The disadvantages of a large increase
According to Johnson, the large annual adjustment may end up hurting some seniors.
For example, the increase in income could push them over the eligibility thresholds for certain government benefits, such as Medicare Extra Help, Medicaid, food stamps, and rental assistance, leaving them eligible for less or no assistance. Or they may have to pay more for their Medicare Part B premiums, which are income-based.
In addition, if their income exceeds a certain threshold, they may be required to begin paying taxes – or pay higher levies – on their Social Security benefits.
Furthermore, the increase may put Social Security’s finances in jeopardy. According to the most recent Social Security trustees’ report, the combined trust funds that pay benefits to retirees, survivors, and the disabled will be depleted by 2035 and will only be able to distribute roughly three-quarters of promised payments unless Congress addresses the program’s long-term funding shortfall.
