Starting in January, some 70 million Americans will see a welcome change in their Social Security benefits, as benefits will rise more than they have in 41 years.
Social Security benefits will increase by 8.7%, or an average of about $146 per month, to $1,827 per month, due to the annual cost of living adjustment (COLA). The increase is related to the increase we have seen this year in the consumer price index (CPI), which measures inflation. It is the largest COLA increase since 1981, when monthly benefits rose 11.2%. The year before, in 1980, they rose by 14.3%.
But there is another financial benefit seniors should see in 2023, as acting SSA Commissioner Kilolo Kijakazi recently noted.
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Social Security benefits up, Medicare premiums down
Medicare premiums are falling and Social Security benefits are rising in 2023, which will give seniors more peace of mind and breathing room. This year’s significant Social Security cost-of-living adjustment marks the first time in more than a decade that Medicare premiums have risen. are not rising and shows that we can provide more support to older Americans who count on the benefits they have earned,” Kijakazi said.
As the acting commissioner referred to, seniors will see their Medicare premiums fall in 2023, starting in January. This is a rare occurrence as it has only happened a few times in the past 50 years, the last being in 2012. The Centers for Medicare and Medicaid Services (CMS) said the standard monthly premium will be $164.90 for 2023, down $5.20 from $170.10 this year. The annual deductible is $226 in 2023, down $7 from 2022.
The decrease is partly due to the fact that the estimated expenditure for certain medicines in 2022 is lower than expected, so that the savings are passed on.
The higher Social Security benefits and lower Medicare premiums should offset some of the hardships seniors have faced in paying higher prices for everything from gas to groceries. But is it enough?
According to a recent survey by The Motley Fool of 750 retired Americans, 85% said they have noticed the effects of inflation on their daily expenses and that it is overstretching their budget. Further, 55% of those surveyed said the 8.7% COLA increase is not enough, while about 40% said it was about right.
Inflation is trending lower
Retirees should know that inflation has gradually come down. In November inflation increased by 7.1% year on year, which is very high from a historical perspective, but lower than the high of 8.5% in August.
The Federal Reserve Board has aggressively raised interest rates to curb inflation. On December 14, the Fed raised rates again, raising the Federal Funds rate by 50 basis points to 4.25% to 4.5%. This was a slightly lower rate of increase than the past four meetings, when rates rose 75 basis points in each meeting.
“The commission expects that sustained increases in the target range will be appropriate to conduct monetary policy sufficiently restrictive to reduce inflation to 2 percent over time,” said a statement from the Federal Open Markets Committee ( FOMC) from the Fed. ).
So, when will inflation return to the Fed’s desired 2% rate? The Federal Reserve makes such predictions at every FOMC meeting, and at its latest meeting this week, the consensus called for an inflation rate of 3.1% by the end of 2023.
The Fed uses personal consumption expenditure (PCE) as its preferred measure of inflation – and expects this number to reach 5.6% at the end of 2022, 3.1% at the end of 2023, 2.5% in 2024 and 2.1% in 2025 These are just projections and of course they can – and usually do – change. In fact, in September, the Fed projected PCE inflation to reach 2.8% by the end of 2023, so expectations have risen since then. But in the end, it shows that inflation should come down in 2023.
Lower inflation, combined with the 8.7% increase in monthly benefits, should give retirees a little more purchasing power in 2023 than they have now, if inflation does indeed fall. It could make up for 2022, when many retirees lost purchasing power as benefits rose by 5.9%, which turned out to be below the rate of inflation.
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