November 7, 2022
The Social Security Administration announced a cost of living adjustment (COLA) of 8.7% for fiscal year 2023, meaning Social Security checks soon will rise significantly. There’s only ever been a larger COLA rise three times, all during the hyperinflation years of 1979-81.
The COLA is largely based on changes in the consumer price index (CPI), which measures consumer prices on many common goods and services. Earlier in 2022 the CPI hit 9.1% but has fallen 0.9% since. However, it’s high enough to justify the largest COLA increase in 41 years.
What does it mean in dollars? The average Social Security retirement beneficiary will see a roughly $140 monthly jump to the current average benefit amount of $1,656.
More good news for seniors is that the Medicare Part B premium is decreasing in 2023. Part B covers doctor and hospital outpatient services. The premium will start at $164.90 per month in 2023, a decrease of $5.20 per month.
But we all know that life comes with tradeoffs. So this good news is tempered with some bad news too.
For example, those who receive income assistance for health care costs can be subject to reductions due to increased income from the COLA. Their pay raises could make them ineligible for benefits if their new income exceeds assistance limits.
Another disadvantage is that higher income Medicare beneficiaries may pay more in Part B and Part D premiums if their incomes surpass $97,000 for individuals or $194,000 for couples filing jointly. More income can push beneficiaries into higher premium brackets.
There’s a third drawback too. See, the income tax thresholds for Social Security benefits have never been adjusted for inflation since the tax started in 1984. As a result, increases in Social Security income due to the COLA could mean a higher portion of those benefits may be taxable.
A final consideration is that increased benefits could make the program at risk for faster insolvency. So Social Security beneficiaries are getting more, but there are downsides too.