Retirees Could Soon Get Their Biggest Social Security Raise in More Than 40 Years

Social Security recipients are up for a big raise next year: benefits are projected to climb 8.7% in 2023, the biggest increase in more than 40 years.

The annual cost-of-living adjustment, or COLA, is designed to help benefits keep pace with inflation, which, though moderating slightly from earlier this year, has remained stubbornly high. The projected adjustment, newly updated to reflect the August consumer price index, will raise the average Social Security retirement benefit of $1,656 by $144.10, according to the Senior Citizens League, author of the projection. 

The Social Security Administration will announce the actual COLA for 2023 in October. The increase is based on a calculation that compares the average consumer-price index from the third quarter of 2022 with data from the same period last year. The index that’s used in the calculation is the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. That index rose 8.7% over the past year, while the Consumer Price Index for All Urban Consumers (CPI-U) rose 8.3%. 

While the COLA will be welcome news for the roughly 66 million Social Security beneficiaries, including 51 million who get retirement benefits, it will nonetheless come late for seniors who have struggled to pay rising prices on this year’s raise of 5.9%. What’s more, the boost will likely subject more of certain beneficiaries’ benefits to federal income taxes. If you file an individual tax return and your income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits; if your income is more than $34,000, up to 85% of your benefits may be taxable. For couples filing jointly, if you and your spouse have income between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits; if your income is more than $44,000, up to 85% of your benefits may be taxable. 

Higher income may also disqualify some beneficiaries from needs-based assistance programs.

The COLA could push some higher earners into the bracket where they have to pay income-adjusted Medicare premiums. For 2022, individuals whose 2020 income exceeded $91,000 and couples whose 2020 income exceeded $182,00 have to pay more than the standard Part B premium of $170.10 a month per person. Higher earners also pay more for Part D drug plans.

Medicare Part B premiums are automatically deducted from most retirees’ Social Security checks. The Part B premium for 2023 will be announced later this fall, and beneficiaries are in for some good news: the premium is not expected to rise much, if at all, after a bigger-than-normal increase this year to cover anticipated costs related to Aduhelm, an Alzheimer’s medication whose cost and coverage have since been scaled back. 

Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com