It’s almost time for the Social Security Administration to break out pencil and calculator to find out how much more it costs to live this year than it did last, and then decide how much of a raise Social Security beneficiaries will get in 2023. For 2022, the Social Security Cost of Living Adjustment (COLA) was 5.9%, the largest increase since 1982. Well, hang on to your hat boys and girls because, in the words of Bachman Turner Overdrive, “you ain’t see nuthin’ yet.”
The annual Social Security COLA is based on the change in prices of a market basket of goods, in other words, the Consumer Price Index (CPI), in regular terms inflation. On July 13, 2022, the Bureau of Labor Statistics said inflation in June 2022 was running at an annual rate of 9.1%, a much higher rate than expected. However, Social Security calculates cost-of-living increases based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from September to September each year. According to the BLS, the CPI-W has increased 9.8% during the past 12 months. So, unless inflation comes down, it’s projected that the next Social Security COLA will be another record-setting increase not seen in more than 4 decades.
The last high inflationary period in the U.S. was in the early 1980s. In 1981, the Social Security Administration announced that benefits would increase 11.2% the following year. In May 1981, the interest rate on three-month Treasury bonds reached a high of 16.3%, almost 5% higher than the adjustment in Social Security benefits.
Today, it’s different. In July 2022, the rate on three-month Treasury bonds is 2.16%, up from 0.44% in March of this year, but still substantially lower than the 2022 COLA or the expected 2023 COLA.
While the possibility of a 9+% increase to Social Security checks sounds really good, you have to keep things in perspective. The cost of Medicare coverage will also go up. In 2022, Social Security checks increased by 5.9% but the cost of Medicare Part B premiums went up 14.5%. To paraphrase an old adage, the government giveth, and the government taketh away. The 2022 Part B premium is $170.10. Medicare hasn’t announced how much more it will cost next year.
Since Congress initiated automatic annual COLAs in 1975, there have been three years in which benefits did not increase: 2010, 2011, and 2016. The single biggest increase, 14.3 percent, went into effect in January 1981.
COLA Increases by Year
Note: COLA changes take effect the next Jan. 1
|Social Security Cost-Of-Living Adjustments|
|a The COLA for December 1999 was originally determined as 2.4 percent based on CPIs published by the Bureau of Labor Statistics. Pursuant to Public Law 106-554, however, this COLA is effectively now 2.5 percent.|
Source: Social Security Administration