Despite inflation dropping a bit last month, the nation is still looking at the highest COLA since 1981 when it was 11.2%, according to new estimates by The Senior Citizens League (TSCL).
While there are still two months of consumer price data left to go, it appears the COLA for 2023 will be 9.6%, based on July Consumer Price Index (CPI) data released Aug. 10 by the Bureau of Labor Statistics (BLS). This is slightly lower than the 10.5% estimate from last month. Going forward, however, it depends on whether inflation runs “hot” or cold, TSCL further notes:
- If inflation runs “hot” or higher than the recent average, the COLA could be 10.1%.
- If inflation runs “cold” or lower than the recent average, the COLA could be 9.3%.
The formula for determining the Social Security COLA is based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is calculated monthly by the BLS. According to the BLS’s data, the CPI-W increased by 9.1% over the last 12 months. For the month, the index declined 0.1% prior to seasonal adjustment.
Consequently, a 9.6% Social Security COLA would increase the average retiree benefit of $1,656 by $159, rounded as done by the Social Security Administration, TSCL notes.
“A high COLA will be eagerly anticipated to address an ongoing shortfall in benefits that Social Security beneficiaries are experiencing in 2022 as inflation runs higher than their 5.9% COLA,” notes Mary Johnson, a Social Security and Medicare policy analyst for TSCL who conducts the estimates. “Based on inflation through July, we calculate that a $1,656 benefit is short about $58 per month on average and by a total of $373.80 year to date.”
According to TSCL’s new Seniors Priority Survey, 37% of participants report they received low-income assistance in 2021, which, the organization notes, appears to be more than double the 16% receiving needs-based assistance prior to the pandemic as reported by the U.S. Census Bureau. “This suggests that the pandemic and inflation have caused significantly higher numbers of adults living on fixed incomes to turn to these programs to supplement their Social Security and Medicare benefits as prices have continued to climb,” says Johnson.
The Social Security Administration is expected to announce the COLA on Oct. 13, 2022, after the release of the September consumer price index data. This also provides an early precursor of what can be expected for COLAs on retirement plan contribution and benefit limits.
All-Items Index
As to the overall inflation numbers, the Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in July on a seasonally adjusted basis after rising 1.3% in June. Over the last 12 months, the all-items index increased 8.5% before seasonal adjustment, which was a smaller figure than the 9.1% increase for the period ending in June.
The BLS explains that the gasoline index fell 7.7% in July, which offset increases in the food and shelter indexes, resulting in the all-items index being unchanged over the month. The energy index fell 4.6% over the month as the indexes for gasoline and natural gas declined, but the index for electricity increased. In addition, the food index continued to rise, increasing 1.1% over the month as the food-at-home index rose 1.3%.
Meanwhile, TSCL further notes that Medicare Part B premiums may not grow by very much in 2023. The Medicare Trustees forecast in their 2022 annual report that the standard Part B premium in 2023 would stay the same as it is now at $170.10. The Centers for Medicare and Medicaid Services (CMS) recently said that excess Part B premium charges in 2022 due to a reassessment of the premium would be used to reduce the Part B premium in 2023. “However, this can change, and we probably won’t hear the announcement of Part B premium until mid-November,” Johnson notes.
