The consumer price index data for September, released Thursday, shows inflation ran at 8.2% over the past 12 months before a seasonal adjustment and was 0.4% from August to September on a seasonally adjusted basis.
Based on the new data through September, the Social Security Administration's final cost-of-living adjustment for Social Security beneficiaries is 8.7%.
A COLA this large would be the biggest increase since 1981. The adjustment would increase the average monthly retiree benefit from its current level of $1,656 by roughly $140.
A Highly Anticipated Announcement
The Social Security Administration uses average inflation in the third quarter, based on the consumer price index for urban wage earners and clerical workers, to calculate the benefit adjustment for the following year. With September's data now available, the SSA can set the final COLA.
Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, says a COLA adjustment in this realm is rare, and she advises beneficiaries to "enjoy it now."
"This may be the first and possibly the last time that beneficiaries today receive a COLA this high," she told ThinkAdvisor in a statement. "There were only three other times since the start of automatic inflation adjustments that COLAs were higher, between 1979-1981."
Near-Record COLA Increases Dented by High Inflation
"Without a COLA that adequately keeps pace with inflation, Social Security benefits purchase less over time, and that can create hardships especially as older Americans live longer lives in retirement," Johnson says. "It's too early to say how well the 8.2% COLA will keep pace with inflation in 2023."
Johnson points out that the sizable 5.9% COLA received by Social Security beneficiaries during 2022 year has fallen short of the rate of inflation, despite being hailed as a meaningful increase in benefits.
Medicare Premium Cuts
Johnson says it is good news for Social Security recipients that the Medicare Part B premium is going down in 2023 at the same time that a sizable benefit increase will kick in.
Medicare Part B, which pays for doctor and hospital outpatient services, is automatically deducted from Social Security checks. The standard Part B premium in 2023 will be $164.90, a decrease of $5.20 per month, from $170.10 in 2022.
The annual deductible for Part B will also decrease from $233 in 2022 to $226 in 2023. This will mean that most beneficiaries will see more money after deduction for Medicare premiums, Johnson points out.
Higher Medicare Costs Down the Road
Johnson warns that rising Social Security income due to COLAs can affect Medicare costs down the road. This is because any increase in the income of a Medicare beneficiary — whether due to COLAs, earnings from jobs, retirement savings or pensions — could potentially affect what an individual pays in Medicare premiums if income is over certain thresholds.
