2023 COLA estimate pushes into double digits after latest inflation report
Social Security recipients may see the 2023 cost-of-living adjustment hit double digits for the first time in more than four decades, as US inflation continues to rise despite government efforts to rein in it.
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Based on Wednesday’s CPI report from the U.S. Bureau of Labor Statistics — which showed inflation in June rose 9.1% from a year earlier — COLA for 2023 would be about 10.5%, according to the Seniors Association, a nonpartisan senior citizen. Law firm.
If it does, it would be the first time COLA has reached a double figure since it hit 11.2% in 1982, according to the Social Security Administration. This year’s COLA at 5.9% is the highest since 1981. As recently as last year, COLA was just 1.3%.
If inflation is “hot” — or above the recent average — 2023 could be COLA 11.4%, said Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League. This would be the second-highest COLA since the SSA began implementing cost-of-living adjustments in 1975. The highest COLA ever was 14.3% in 1981.
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Johnson said if inflation is “cold,” or below the recent average, next year’s COLA could be 9.8%.
Much depends on how successful the Fed’s efforts to ease inflation by raising interest rates are. The Fed has already raised interest rates three times this year, including a 75 basis point hike in June – the first such move since 1994. Now there is speculation that the central bank will release another 75 basis point increase this month.
The current quarter’s inflation rate will have a lot to say about the magnitude of the surge for Social Security recipients in 2023. As previously reported by GOBankingRates, COLA is calculated using the average inflation rate in the third quarter of the year. When those numbers come out, the July, August, and September data will be added together and divided by three to get the average. The 2022 figure will then be compared to the third-quarter average of 2021 to determine the percentage change for 2023.
“The COLA will be eagerly anticipated to address the ongoing benefit shortfalls for Social Security recipients in 2022 as inflation is above 5.9% of their COLA,” Johnson told GOBankingRates in an email.
Not everyone is happy with the way Social Security COLA is defined — in part because it is based on the CPI for urban wage earners and clerical workers, which doesn’t explain Medicare Part B premium increases.
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“In 2022, the segment increased by 14.5%, which is one of the highest jumps in program history,” Johnson said. “The Part B premium is automatically deducted from Social Security checks, and in 2022 recipients are still getting hurt.”
Meanwhile, a significant increase in COLA next year could have negative tax consequences unless lawmakers change income thresholds for Social Security recipients. According to the Association of Senior Citizens, 10.5% of the retiree benefit rate will increase the average retiree benefit of $1,668 by $175.10.
Johnson said that higher incomes often lead to reductions in income-related benefits for those on lower incomes as well as tax increases for those with incomes above $25,000 for singles and $32,000 for married couples.
“The Seniors Association believes that the tens of thousands of retirees who have not paid tax on their benefits in the past may find that they should start doing so in 2023,” she said. “Because income thresholds are not adjusted like regular tax brackets, these once-in-a-lifetime COLA increases may result in permanently higher taxes for many retirees.”
Higher incomes can also result in the loss of Medicare and income-adjusted prescription drug benefits for lower-income recipients.
“High-income individuals can end up paying Medicare Part B and Part D benefits,” Johnson said.
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This article originally appeared on GOBankingRates.com: Social Security: Estimate for 2023 COLA pushes into double digits after latest inflation report