Disappointed With Your 8.7% Social Security COLA? Here’s Why You Shouldn’t Be

(Maurie Backman)

Inflation has been plaguing consumers since the end of 2021, and seniors on Social Security have certainly felt the pinch. At the start of 2022, Social Security benefits received a 5.9% cost of living adjustment (COLA). But the inflation rate has far exceeded that 5.9% increase this year, leaving Social Security recipients struggling to cover their living expenses.

At one point earlier this year, some experts called for a Social Security COLA of up to 11% for 2023. Meanwhile, the Social Security Administration has just announced that beneficiaries will be lining up for an 8.7% COLA next year.

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At first glance, that 8.7% increase might sound like a disappointment — especially given the much higher numbers that were being tossed around in multiple places earlier this year. But that’s why you should be happy with the increase in Social Security next year.

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1. It’s the biggest raise seniors have received in decades

As seniors saw their benefits increase by 5.9% in early 2022, this COLA was hailed as the biggest in decades. Now COLA 2023 will adopt this distinction. And while an 8.7% increase is clearly a far cry from an 11% increase, that increase should still help seniors gain some measure of spending power and better manage their spending.

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2. It is an indication that inflation is slowing

Social Security COLAs are calculated based on third quarter data from the Consumer Price Index for Urban Wage Earners and Office Workers (CPI-W), which is a subset of the more debated Consumer Price Index. The fact that COLA is at 8.7% next year versus 11% means that inflation levels have been cooling in recent months.

To be clear, that doesn’t mean we’re done with rampant inflation. But it means inflation didn’t end up rising as much as some pundits had suggested.

It’s worth noting that high-level proponents have long said that the CPI-W is not a particularly good measure for calculating COLAs. Rather, seniors would be better off if COLAs were based on a CPI-E — a consumer price index for older people that more accurately reflects the costs that Social Security recipients typically face.

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But until that change kicks in (if it happens at all), the CPI-W is the metric Social Security Administration must work with. And the fact that seniors aren’t getting double-digit COLA means the cost of living hasn’t risen as much as it could have.

3. Seniors should finally be able to keep their full COLA

Seniors who are simultaneously enrolled in Medicare and Social Security will have their Part B premium costs automatically deducted from their benefits. Most years, the cost of Part B increases, eroding the benefits of COLA.

But in 2023, Medicare Part B costs are actually falling. As such, Social Security recipients should be able to keep their entire COLA for the first time in years.

Look on the bright side

It’s easy to focus on the fact that next year’s Social Security COLA isn’t as high as some previous forecasts have called for. But rather than dwell on that detail, it’s better to focus on the fact that COLA 2023 is still huge and won’t be eroded by Medicare premium increases. It’s also important to recognize that lower inflation rates are a good thing for consumers — especially those who get most of their income from Social Security.

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