The Senior Citizens League predicted that the Social Security retirement benefit cost-of-living adjustment (COLA) for 2023 might be 8.7%. The increase would be the biggest in almost 40 years.
The SCL stated in a press release that a COLA of 8.7% is uncommon and would be the biggest payment ever made to the majority of Social Security recipients still living. Since the introduction of automated adjustments, it has been higher only three previous times (1979-1981). You may read about the history of COLAs here.
The estimate is based on updated Bureau of Labor Statistics (BLS) Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) data through August. The final month of consumer price information has passed. On October 13, following the September CPI-W data publication, the Social Security Administration is anticipated to make the 2023 COLA announcement.
The method for calculating each COLA is laid out in the Social Security Act. The methodology states that rises in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) serve as the foundation for COLAs.
A COLA for December of a given year is equal to the percentage increase in the average CPI-W for the third quarter of that year over the average for the third quarter of the year before, the one in which a COLA went into effect. If there is one, any increase would be rounded to the nearest tenth of 1%. There is no COLA if there is no rise or the rounded increase is zero.
How are the CSRS COLA and FERS COLA differences calculated?
A COLA may impact different federal retirees under the Federal Employee Retirement System (FERS) and the Civil Service Retirement System (CSRS).
The FERS COLA and CSRS COLA are compared in the following table:
Medicare Part B premiums in 2023 may stay around the same.
According to the SCL, Medicare Part B rate increases in 2023 could not be that significant. The Medicare Trustees predicted in their annual report for 2022 that the regular Part B premium would continue at $170.10 per month in 2023. Mid-November is typically when the Medicare Part B premium and other charges are revealed.
When will the Social Security COLA for 2023 be revealed?
There is just one more month’s worth of consumer pricing information before the Social Security Administration releases the COLA for 2023. The Senior Citizens League anticipates the SSA to announce the publication of the September consumer price index statistics on October 13.
Mary Johnson, the league’s Social Security and Medicare policy analyst, says, “A COLA of 8.7% is exceedingly uncommon and would be the largest benefit that most Social Security recipients alive today have ever received.” Only three other instances (1979-1981) were higher since the automatic adjustments began.
“COLAs are designed to support keeping Social Security benefits’ purchasing power when prices rise. The total Social Security income that retirees will receive throughout their retirement will steadily increase due to these permanent increases. According to Johnson, without a COLA that sufficiently keeps pace with inflation, Social Security benefits will gradually buy less over time, which might be difficult for older Americans retiring later in life.
“The COLA for August 2023 has, on average, fallen 48% short of inflation through August. A $1,656 benefit is short by a total of $417.60 year to date, or around $43.80 per month on average.”
The tax implications of the COLA increase
Although Social Security COLAs are intended to provide financial relief, they may increase your tax burden. According to preliminary findings from The Senior Citizens League’s 2022 Retirement Survey, almost 59% of respondents feel they may have to pay more in taxes in 2022 because of the 5.9% COLA they received this year.
Furthermore, according to 21% of respondents, their household income was below the income levels that might subject up to 85% of Social Security benefits to federal income taxes until 2022. This group is concerned that they may have to pay tax on a portion of their Social Security income for the first time during the upcoming tax season.
For the next year, a COLA of 8.7% would result in comparable recurring increases in tax obligations.
Premiums for Medicare
The government typically announces the Medicare Part B premium and other expenditures in the middle of November. In 2023, Johnson predicts that the cost of Medicare Part B won’t likely increase significantly.
In their 2022 annual report, the Medicare Trustees predicted that the regular Part B premium would remain at $170.10 in 2023. The extra Part B premium charges from this year, as decided following a reassessment, will be used by the Centers for Medicare and Medicaid Services to lower the Part B premium in 2023, according to the agency.
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