Social Security Raise 2023: What We Know So Far

Inflation fell to 8.5 percent in July from the peak of 9.1 percent reached in June, as gas prices eased—but the cost of living remains painfully high for Americans, including senior citizens.

Even with the small drop in inflation last month, seniors are still expected to receive the highest cost-of-living adjustment (COLA) since 1981, according to The Senior Citizens League.

Every year, Social Security benefits are adjusted to the pace of inflation to ensure that the buying power of senior citizens remains the same throughout the ups and downs of the economy.

The adjustment is calculated by comparing the average CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) for the third quarter of the current year to that of the previous year, and if there's an increase, social benefits are adjusted to match it.

Senior citizen
The increase in social benefits for senior citizens is expected to be a little lower than suggested by estimates last month, as inflation has fallen in July. The above stock image shows two people holding hands. Getty Images

This year, the COLA will be decided in October and formally implemented starting from the beginning of next year.

Based on the new CPI-W data through July, The Senior Citizens League expects the COLA for 2023 to be 9.6 percent, less than the 10.5 percent the nonpartisan group had predicted a month ago, but still a record-breaking adjustment unseen since 1981, when the COLA hit 11.2 percent.

If inflation should run "hot" and soar back from the current average, the league expects the COLA to be 10.1 percent. If inflation runs "cold," on the other hand, and the Federal Reserve's efforts to cool down inflation rates pay off, the group expects the COLA to be 9.3 percent.

These are likely not the last estimates we will get before the COLA is officially decided in October, as there are still two months of consumer price data to go before that moment.

But any kind of increase in social benefits will come as a relief to senior citizens, who have seen their purchasing power plunge as inflation now runs higher than the 5.6 percent COLA decided last year.

"Based on inflation through July, we calculate that a $1,656 benefit is short
about $58 per month on average and by a total of $373.80 year to date," Mary Johnson, Policy Analyst at The Senior Citizens League, told Newsweek.

"A COLA would increase the average retiree benefit of $1,656 by $159.00," she added.

Not a 'Perfect' Solution

Senior citizens on lower incomes and those who received fixed incomes are currently struggling the most, as they often don't have savings to fall back on as their benefits lose value.

But those people won't necessarily benefit from a large COLA, as higher income may lead to cuts in income-related benefits for low-income people.

"A high COLA is absolutely necessary to keep up," Johnson said. "But it's not perfect."

In a new survey by The Senior Citizens League, 37 percent of survey participants reported they were receiving some type of low-income assistance in 2021, according to Johnson.

"Of that group, 14 percent reported their benefits were adjusted in 2022 due to the 5.9 percent COLA received this year. Six percent reported that due to the 5.9 percent COLA they lost access to one or more programs altogether," she told Newsweek.

A high COLA could also cause higher-income beneficiaries to pay an income-related surcharge on their Medicare Part B and Part D benefits.

"I would argue this does not make a high COLA bad," Johnson said, adding that "higher taxes occur when anybody gets a raise, and few people turn down the raise for that reason alone."

"It does mean that we need to plan for taxes and possibly higher Medicare costs," she said. "It may mean contacting the Social Security Administration to increase withholding of taxes from your benefits, doing the same thing with the banks holding one's retirement savings accounts. And for some people, it might be necessary to send in quarterly estimated tax payments."

Seniors spend more than twice on healthcare than younger people, with those over the age of 75 spending almost three times as much —a factor which is not currently reflected in the way COLAs are calculated.