Social Security checks will be 8.7% bigger in 2023, the largest cost-of-living adjustment to benefits in four decades, the Social Security Administration said Thursday.
The extra funds will provide relief for many of the roughly 70 million Social Security recipients whose budgets have been stretched thin by high inflation and whose nest eggs were walloped by plunging stock and bond markets. The average monthly Social Security check for retired workers will rise to $1,814 in January, up from $1,669 this year.
For the government, this supersize cost-of-living adjustment, or COLA, means paying out more money to retirees, whose ranks are swelling as baby boomers retire. For retirees, however, the COLA will “be a welcome relief to people when they get it this January,” said David Certner, legislative counsel at AARP.
The cost-of-living adjustment is intended to ensure benefits keep pace with inflation. The annual increase is tied to the average inflation for July, August and September, using the Labor Department’s Consumer Price Index for Urban Wage Earners and Clerical Workers. The broader consumer-price index rose 8.2% in September from a year earlier.
Next year’s increase will be the largest since 1981, when benefits rose 11.2%, according to Social Security Administration data. The highest COLA since the program began automatic cost-of-living increases in 1975 was 14.3% in 1980.
Just over 40% of Americans age 65 and older rely on Social Security for half or more of their income, according to an AARP analysis of recent government data. About 20% of recipients in that age group depend on the benefits for 90% or more of their income, the analysis found.
Mr. Certner said soaring inflation has been hard for many retirees to manage. While Social Security benefits rose 5.9% this year, that hasn’t fully kept pace with inflation. Most private-sector pensions don’t have a cost-of-living adjustment, he said, and most other sources of retirement income, such as 401(k) and individual retirement accounts, have declined this year with the markets.
Retirees also got hit this year with a 14.5% increase to $170.10 a month in Medicare premiums for Part B, which covers outpatient care and is typically deducted from Social Security checks. Next year, Medicare Part B premiums will decline by $5.20 to $164.90 a month, due in part to lower-than-expected Medicare spending for Alzheimer’s disease drug Aduhelm.
Like most retirees, Bill Waldie, 71, of Iowa City, has his Medicare premiums deducted from Social Security. When inflation was low, the increase in the annual premium often consumed much of his Social Security cost-of-living increase.
But with the premium falling next year, Mr. Waldie said, “I’ll actually get to keep the entire COLA.”
The former insurance executive, who retired in 2011, said he is in good shape financially, thanks in part to pensions he and his deceased wife earned.
He and his partner have cut back on restaurant meals and mainly drive her Mazda these days, since it gets better mileage than his Volvo. He said he eliminated expensive foods, including steak and lunch meats, and turned his thermostat down last winter.
Mr. Waldie said the higher Social Security COLA is good news in a year in which his investment portfolio is down 20%.
“That’s uncomfortable, but having the COLA and the pensions make it a little easier to stay in the stock market,” said Mr. Waldie, whose Social Security benefits comprise about 40% of his income.
Nancy Brown LaPorta, 66, said her former husband’s Social Security brings in virtually all of her income. After paying her premiums for Medicare and a Medicare supplement policy, she said she has about $1,488 left each month.
The founder of a nonprofit sanctuary for wolfdogs in Black Mountain, N.C., said her grocery bills rose about 30% this year. She spends about $80 to fill up her truck, double the cost two years ago, and has started mowing her own 5-acre lawn to save money.
While the COLA will be helpful, she said, “inflation is kicking the butts of us everyday people.”
The price of dog food has risen from $60 a bag to $74 over the past year, and the sanctuary’s “donations have certainly not kept up,” said Ms. LaPorta.
Ms. LaPorta said the rising cost of living, combined with a recent bout of cancer, convinced her to sell her farm last month. She lives rent-free in a friend’s house and is winding down the sanctuary, which once cared for 70 dogs a year and now has 19.
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“It has been a labor of love,” said Ms. LaPorta, who left her job as a sales representative at a moving company in 2004 and spent the $312,000 she had saved for retirement to support herself and the sanctuary. She plans to switch from her former husband’s Social Security to her own benefit to secure a higher monthly income.
Retirees can start Social Security benefits any time between ages 62 and 70, with the benefit amount increased for every month of delay. Cost-of-living increases start at age 62, whether you claim benefits then or delay, and continue for as long as you live.
While a higher cost-of-living increase is a positive for retirees, the increase in monthly checks will cause more people to owe federal income tax on their Social Security benefits. The $25,000 income threshold for individuals, or $32,000 for couples, isn’t adjusted for inflation. The annual income figures include half of an individual’s or couple’s Social Security benefits.
Next year’s COLA increase is likely to hasten the date of insolvency for the Social Security trust fund, according to the nonprofit Committee for a Responsible Federal Budget, which predicts that insolvency will occur in 2034, a year earlier than it previously forecast. At that time, Social Security income would be sufficient to pay about 80% of scheduled benefits.
Write to Anne Tergesen at [email protected]
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