If you receive Social Security retirement benefits, you might actually be rooting for inflation next month. That’s because the U.S. government will use price data from July, August and September to calculate monthly benefits for next year — and the higher inflation climbs, the bigger the check will be.
Skyrocketing prices have had Social Security recipients speculating for months that a significant increase in the cost of living adjustment (COLA) is coming, and it’s looking likely (though inflation is cooling a bit). Food costs, for instance, went up 1.1% in July, the seventh consecutive monthly increase of 0.9% or more.
The latest estimate, based on data released Wednesday by the Bureau of Labor Statistics, hints at a COLA for 2023 of as much as 9.6%. That would mean the average retiree would see a $159 monthly increase in their benefits — about $1,900 for the year, according to the Senior Citizens League, a nonpartisan advocacy group for older adults.
Even with a slightly tamer inflation rate, this will be the highest COLA since 1981, when it was 11.2%.
There are only two months of consumer price data left to go before the Social Security Administration unveils the COLA: August and September. Last year, it made the announcement on Oct. 13.
Along with that higher monthly check comes a slight drop in Medicare costs: The average basic monthly premium for standard Medicare Part D coverage is slated to notch down 1.8%, according to a release from the Centers for Medicare and Medicaid Services. That means the $32.08 people typically pay will drop to $31.50 in 2023. Part B premiums are also expected to decrease.
How is COLA calculated?
The Social Security Administration uses a specific formula to calculate the cost of living adjustment annually — if there's an adjustment, that is. There's not always a fluctuation, either. In 2009, 2010 and 2015: no increase.
Most years, that raise is pretty small. Last year, Social Security recipients got a 5.9% bump.
The COLA is based on data from the Bureau of Labor Statistics, which creates the Consumer Price Index. That index measures the average change in prices that people in urban areas pay for a market basket of consumer goods and services, such as groceries, utilities and gas. Also factored in: data from the CPI-W, a more specialized index that tracks the prices paid by wage earners and clerical workers in cities.
To illustrate just how substantial this increase is, over the last six years, the COLA ranged from 0.3% to 2.8%. The average monthly Social Security check was $1,669 as of June, according to the Social Security Administration. Ten years ago, the average check was $1,261.