Understanding the increase in Social Security benefits
Millions of Social Security recipients just received the biggest benefit increase in 40 years, fueled by record-high inflation and intended to help cover the higher costs of food, fuel and other goods and services. (October 13)
AP
The forecast for next year’s Social Security increase rose to 3.2% from 3% on Wednesday after the government said inflation rose in August.
The annual inflation rate rose to 3.7% in August from 3.2% in July, but was below a 40-year high of 9.1% in June 2022. Excluding the volatile food and energy sectors, the so-called “core” -Inflation rate at 4.3%, down from 4.7% in July.
Energy fell 3.6% for the year while food rose 4.3%, compared with declines of 12.5% and 4.9% in July. Accommodation rents, which include rentals, rose 7.3% over the past 12 months, but were still weaker than July’s 7.7% gain.
Although inflation remains well above the Federal Reserve’s 2 percent target, the trend remains mostly lower, meaning Social Security recipients will see a smaller cost of living adjustment (COLA) of 3.2 percent next year, according to a forecast by The Senior will experience Citizens League, a non-profit senior group. That’s less than half the four-decade high of 8.7% COLA in 2023, but still higher than the 2.6% average over the last 20 years.
Lower inflation is welcome, but “the harsh reality is that the amount by which COLAs increase benefits is paltry at best in most years,” said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League .
Seniors couldn’t keep up, and inflation made it worse
Annual COLAs are intended to ensure that Social Security recipients’ purchasing power is not affected by inflation. However, COLA failed to keep up and seniors were the only group whose share of poverty increased between 2020 and 2021, according to the Census Bureau. On Tuesday, the Census Bureau also reported that the poverty rate for older adults increased from 9.5% in 2020 to 14.1% in 2022 and 10.7% in 2021, after accounting for government cash and in-kind benefits, geography, Taxes and necessary expenses.
According to an actuarial note from the Social Security Office of Chief Actuary, Social Security only replaces about a third of the average wage of a middle-income earner. Making matters worse, 59% of older adults are drawing Social Security benefits before they reach full retirement age and are receiving permanently reduced benefits, according to a survey of 2,259 retirees conducted this month by the Senior Citizens League.
Although inflation this year was below the 8.7% that beneficiaries received, seniors were unable to recoup the losses they suffered in the last two years when inflation reached a 40-year high, Johnson said .
“In 2021 and 2022, inflation was so severe that the average Social Security benefit fell by $1,054, leaving 53% of retirees doubting they will recover because household costs rose more than the dollar amount of their COLAs.” , she said.
Medicare Part B Wildcard
Additionally, every year seniors worry about what they will have left of their COLA increase after Medicare Part B premiums, which are typically announced in November, are paid. Medicare Part B premiums, which are higher for high-income people, are automatically deducted from monthly Social Security payments.
In March, Medicare trustees predicted monthly Part B premiums would rise to $174.80 next year, up from $164.90 this year. However, this does not include costs that arise after the cost estimate has been published. One such cost factor may be that in July, Medicare began covering another new Alzheimer’s drug: lecanemab, known by the brand name Leqembi.
If just 5% of the 6.7 million older U.S. adults with Alzheimer’s disease took Leqembi at the annual list price of $26,500, it would add $8.9 billion to annual Medicare spending, according to the nonpartisan study Add B, assuming everyone is enrolled in Part B Group KFF. A 10% utilization rate would result in $17.8 billion in increased spending, it said.
“Increased spending on Medicare Part B would likely result in higher Medicare Part B premiums, which are expected to cover about 25% of program costs,” KFF said.
Johnson predicts that the drug and associated Part B services needed to administer and monitor the patient for dangerous side effects of Leqembi would increase the Part B premium by about $5 per month for everyone, which would potentially increase the premium to about $179.80 per month by 2024.
But “most beneficiaries could see their Part B premium increase by nearly $15 per month starting in 2023,” she said, noting that “other costs are driving Part B premiums even higher.” could.”
More seniors are also paying Social Security taxes
Taxes also reduce Social Security benefits.
In a Senior Citizens League survey of 1,759 retirees in mid-July, more than one in five Social Security recipients (23%) said they paid taxes on some of their benefits for the first time this past tax season (April 2022). . The 2022 tax return reflected a 5.9% COLA increase in Social Security benefits.
“We expect the number of people paying taxes on a portion of their Social Security benefits to increase even further as next year’s tax season reflects the 8.7% COLA increase in 2023,” Johnson said.
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How do seniors cope?
With 79% of respondents in July saying essential items are more expensive than a year ago, most are putting off medical care to cover daily living costs, the survey said.
Nearly two in three have postponed dental care, including major services such as bridges, dentures and implants, to cope, while 43% said they have postponed optical exams or purchasing prescription glasses. A third have postponed seeking medical care or filling prescriptions due to deductibles, co-pays and unexpected bills.
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How is COLA calculated?
Each year, the Social Security Administration (SSA) bases its COLA on the average annual increases in the Consumer Price Index for Urban Wage Earners and Office Workers (CPI-W) from July to September. The CPI-W largely mirrors the general CPI that the Department of Labor releases each month, but differs slightly. While the CPI rose 3.7% last month, the CPI-W rose 3.4%.
The Seniors Citizens League uses the latest inflation data to create a rolling forecast of what COLA might be next year. July and August are particularly important because they make up two of the three months that SSA officially uses to calculate the 2024 COLA.
How many Americans qualify for the COLA increase?
Approximately 70 million Americans receive benefits from programs administered by the SSA, with retired workers and their dependents accounting for 76.9% of benefits paid in 2022.
Nearly 9 in 10 people ages 65 and older received a Social Security benefit as of Dec. 31. Among them, 12% of men and 15% of women rely on Social Security for 90% or more of their income.
According to the SSA, the average monthly check for Social Security recipients was $1,703.98 in July. A 3.2% COLA would mean about $54.50 more per month.
When will the Social Security COLA be announced?
The next COLA will be announced in October and will take effect from January 2024.
Medora Lee is a money, markets and personal finance reporter for USA TODAY. Reach her at [email protected] and sign up for our free Daily Money newsletter every Monday for personal finance tips and business news.