A larger inflated Social Security check and, yes, hope for some relief from the high cost of prescription drugs are on the horizon. And for many retirees, the relief can’t come soon enough.
Inflation is brutal on low-income consumers, including millions of retirees, who don’t have much savings as the cost of gas, groceries and rent soars.
Thanks to rising inflation, those drawing Social Security benefits can look forward to an approximately 8% to 9% higher payout in 2023, based on early estimates.
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Retirees could get an additional $1,800 a year
On average, a retiree might see an extra $150 a month — if there’s a 9% cost-of-living adjustment to Social Security for the next year — based on an example of current benefits of $1,656 a month. A cost of living adjustment in this example would be an additional $1,800 per year.
We will have to wait until October for the official inflation adjustment.
“This will be one of the highest COLAs ever paid in the history of the program,” predicted Mary Johnson, social security policy analyst at The Senior Citizens League, a nonprofit group.
Based on CPI data for the year to July, the COLA adjustment could be around 9.6% if inflation continues at a similar pace.
If inflation picks up, the Senior Citizens League estimates that adjustment could rise to about 10.1%.
If inflation cools, the adjustment could be in the 8% to 9% range, according to estimates.
Only two months of consumer price data – August and September – remain to calculate the adjustment. September data will be released October 13 by the US Bureau of Labor Statistics.
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A few years had such substantial gains
The inflation adjustment for Social Security benefits was high at 5.9% in 2022. The cost of living adjustment began paying benefits to more than 64 million Social Security recipients in January.
But you would have to go back to 1979, 1980, and 1981 to make an inflation adjustment of 9% or more. That was the highest COLA ever 14.3% in 1980.
Johnson said the deepest effects of inflation have been felt by older adults who don’t bring home a paycheck, even a small one; and seniors who have no pension or savings.
“Any COLA makes sense,” Johnson told the Free Press, “because Social Security is one of the few forms of retirement income that is inflation-adjusted.”
For example, if you now need about 10% more money to buy the same groceries and other goods that you bought a year ago, you will use up your savings much faster.
While you can reduce your spending by going with generic brands, eating less meat or going out for lunch less often, everything we buy is not random and cannot be crossed off a shopping list.
Inflation was high last year – and rose even more in 2022. July showed improvement as the month-to-month change was flat, partly reflecting a 7.7% fall in gasoline prices.
However, retirees have not been able to keep up with inflation this year because many pensions are not adjusted for inflation – and many retirees have no pension at all.
For example, while an inflation adjustment for Social Security benefits this year based on 2021 data was helpful, it did not reflect ongoing inflationary pressures in 2022.
Inflation is much hotter than the 5.9% adjustment granted in 2022 to retirees and people receiving supplemental security income payments paid to people with a disability or blindness whose income and resources are below certain limits .
In the 12 months to July, the consumer price index increased by 8.5%. Year-on-year, the inflation index rose by 9.1% in June.
“The actual COLA that we received has lagged behind actual inflation,” Johnson said. Her group estimates that with a monthly Social Security benefit of $1,656, the deficit is about $58 per month.
Some of these could even fail in 2023.
“With the next COLA we get, we might be in a little bit better shape,” Johnson said. “I don’t know how long inflation will continue at its current rate.”
Richard Johnson, director of the Urban Institute’s retirement policy program, said no one can say with certainty how much Social Security benefits will increase in 2023.
Assuming energy prices continue to fall in August and September, which Johnson says seems likely, and other prices continue to rise at recent rates, Johnson estimates that next year’s Social Security COLA would be 8.7%.
If energy prices hold steady over the next two months, COLA could be as high as 9.3%, he said.
“The increase will greatly help seniors, especially those who rely most heavily on Social Security,” he said.
“But the adjustment just puts them back to where they were at the start of the year, before prices really took off. Every time prices go up in 2023, they will fall further back.”
Richard Johnson noted that the Social Security cost-of-living adjustment does not perfectly reflect how Social Security recipients spend to meet their expenses because the index is tied to the spending of urban wage earners and office workers, who are mostly too young to collect Social Security.
Overall, “seniors have actually done slightly better than younger people when it comes to inflation,” Johnson said.
He pointed out that the Bureau of Labor Statistics calculates an alternative index to reflect spending by people age 62 and older, known as the CPI for the Elderly, which puts less weight on transportation and more weight on medical care and housing than that Standard inflation measure.
Johnson said the CPI for the elderly has risen slightly less than the standard CPI over the past 10 months because it gives less weight to transportation and energy. Of course, energy prices have risen enormously in the past year.
Some seniors benefited as prescription drug prices rose just 2.8% over the past 12 months, Richard Johnson said, much less than the overall rate of inflation.
When you retire, every extra euro counts.
The problem for many households, including those headed by some retirees, is that personal savings are limited and prices are unlikely to fall even if inflation cools.
According to a 2019 study released by the US Government Accountability Office, about 48% of households headed by a person aged 55 and older had no retirement savings in 2016.
Some of these families might have a pension that could help them earn a monthly income, but the same study showed that 29% of these households had no pension or savings.
Inflation creates uncertainty
Not surprisingly, half of retirees who are less confident they can live comfortably in retirement blame inflation for triggering more anxiety, according to the 2022 Retirement Confidence Survey, conducted by the Employee Benefit Research Institute and Greenwald Research was carried out.
Inflation wasn’t a concern for decades, but now those who are retired or planning to retire need to think about what higher prices mean for their 401(k)s or limited savings.
An important point: If you are at least 62 years old in 2023, you will automatically benefit from next year’s COLA increase – even if you have not yet claimed social security benefits.
Inflation adjustments will be incorporated into future payments each year until you claim benefits, as long as you are 62 years of age or older in 2023.
The Social Security Administration states: “You are entitled to a cost-of-living increase from the year you turn 62. This also applies if you do not receive any benefits until your full retirement age or even until the age of 70.”
Ultimately, it would help a lot to get inflation and some costs under control again.
For retirees, the 2022 Inflation Reduction Act offers some hope that they’ll soon see relief from drug costs, but most of the changes aren’t immediate.
New federal law caps deductibles for Part D prescription drugs covered by Medicare at $2,000 starting in 2025.
One change in 2023: Beginning next year, the law will cap co-payments at $35 per month per prescription for insured insulin products in Medicare Part D plans and for insulin delivered via an external insulin infusion pump under Medicare Part B will, without deductible.
Many Medicare recipients are concerned about higher premium costs in 2023. Retirees are often frustrated that their Medicare Part B premiums have been aggressively increased and the inflation adjustment to Social Security benefits has been cut.
But fingers crossed retirees may not face that challenge next year.
Medicare Part B covers doctor visits and outpatient care, as well as some medications. The changes for all Part B awards would likely be announced in mid-November.
Last November, the Centers Medicare & Medicaid Services announced that the monthly Medicare Part B premium rate in 2022 would be $170.10 — a 14.5% increase over the 2021 premium.
This year it is possible that the increase will be smaller or even flat.
In May, Secretary of Health and Human Services Xavier Becerra announced that Medicare Part B premiums paid by Medicare beneficiaries for 2022 should be adjusted downward to account for an overestimate of the costs associated with including the new one Alzheimer’s drug Aduhelm in the Medicare program for reimbursement.
No such adjustment was made this year, but many expect it will limit potential increases in 2023.
No, the pain of inflation will not go away. But some things could soon work in favor of pensioners.