In 2023, Social Security recipients will see a cost-of-living adjustment (COLA) of 8.7%, the most significant increase since 1981 and the fourth largest COLA in the history of the Social Security program.
While the Social Security Act of 1935 created the Social Security Administration (SSA) as an independent agency of the U.S. government to administer a program of retirement, survivor and disability benefits, annual COLA adjustments were introduced into the program in 1972 to factor in the cost of inflation for those receiving fixed-income benefits.
According to the SSA, in 2022, an average of 66 million Americans receive a monthly Social Security benefit, totaling over $1 trillion in benefits paid during the year. Nine in 10 people, ages 65 and older, receive monthly benefits. Looking down the road, the number of Americans 65 and older will increase from about 58 million in 2022 to about 76 million by 2035.
In a statement issued in October by the American Association of Retired Persons (AARP), the average benefit will increase by $145 per month. The statement continues, “The guaranteed benefits provided by Social Security, including the annual COLA, are more crucial than ever as high inflation remains a problem for older Americans. The automatic adjustment is an essential part of Social Security that helps ensure the benefit does not erode over time due to rising prices.”
The increase in Social Security benefits will, of course, impact each recipient differently. For some, it may be money added to savings or investment accounts; for others, it may ease the pinch of daily living expenses, such as food and rent.
The increase is, in part, an attempt to recoup the loss of purchasing power that seniors have experienced caused, in part, by rising inflation.
An ongoing study by The Senior Citizens League, published in May, showed that purchasing power for older adults dropped 10 points. The study compares COLA adjustments with increases in the price of goods and services typically used by retirees. Since March 2021, Social Security benefits have been most impacted by sharp increases in home heating, gasoline and food costs.
In previous years, COLA increases were often depleted by a rise in Medicare Part B premiums. For example, in 2022, a 5.9% COLA was undercut by a record-high increase in Medicare Part B premiums, which are deducted from Social Security payments. However, in 2023, the welcome news for recipients is that the standard Medicare Part B premium will be reduced slightly, from $170.10 to $164.90 monthly.
Help for seniors is on its way on another front — prescription drugs. One of the provisions of the Inflation Reduction Act of 2022, passed by Congress and signed into law by President Biden in August, is prescription drug reform to lower prices. For those enrolled in Medicare Part D, most vaccines will be covered at no cost and insulin copays will be capped at $35 per month.
While a majority of Social Security recipients are retired workers, (76.1% in 2021, according to SSA statistics), SSA programs also include 12.4% of benefits paid to disabled workers and their dependents and 11.6% of benefits paid to survivors of deceased workers.
The adjustment takes effect with the December 2022 benefit payment, paid to recipients in January 2023.