September 1, 2022

September 2022 Social Security COLAs

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

Next month Social Security will tell us what the 2023 cost of living adjustment will be. So, we can expect a nice adjustment next year. There has been lots of press on Cost-of-Living Adjustments for social security. Being a significant source of income for tens of millions of US seniors….as inflation increases, retirees have a more challenging time meeting expenses with increases in interest rates for major purchases such as cars and homes AND as important increases in gasoline and groceries. Social security checks experienced a 5.9% increase in 2022.

This increase to Social Security benefits is meant to help offset rising prices that could erode purchasing power. Social Security COLAs are not guaranteed every year. COLAs have been paid in most years, but not when inflation is too low to trigger an increase. Past COLAs have been in 1983 7.4%, COLA in 2009 5.8%, 5.9% COLA in 2022 – no COLA in 2010, 2011, and 2016. COLAs are officially announced each October and reflect any annual increase in the Average Consumer Price Index for Urban Wage Earners and Clerical Workers, called the CPI-W.

Specifically, the Average CPT-W for the third calendar quarter of the current year is compared to the average CPW-W for the third calendar quarter of the last year a COLA was paid. We’ve already talked about that increase being eroded away with price increases in these commodities. In addition for Medicare retirees the Medicare Part B premium is going from a base of $148 – to a base of $170 – a $22 monthly increase that’s a huge increases in this monthly cost. That all helps to erode away that 5.9% Social Security increase.

NOW let’s look at the COLA for next year 2023 – will probably be even higher because costs have increased throughout the year. High COLA’s may not be as beneficial as they seem.

In terms of the size of the COLA for 2023, it is unclear at this point – increases are calculated after the 3rd quarter of the prior year. So the size of the COLA for 2023 is unclear at this point. COLAs are calculated based on the 3rd quarter of prior year so guess what folks – we are almost in the 3rd quarter of 2022 – and costs are determining what that percentage of increase for 2023 will be. It is unclear at this point what the size of the COLA for 2023 will be. But we will know soon.

Throughout the rest of 2022 inflation will determine the final number. Researchers from the Senior Citizens League estimated earlier this year that next year’s COLA might be as high as 8.6%. Recent research from the nonpartisan Committee for Responsible Federal Budget suggests it can be seen as high as 10.8% – the highest since 1981. The Senior Citizens League estimates that if inflation runs higher than the recent average, the COLA could be 11.4%. Conversely, if inflation runs lower than the current average, the COLA could be 9.8%. Inflation is expected to moderate later in 2022, resulting in a 7 – 10% Social Security COLA increase in 2023. That’s a lot to look forward to huh?

Remember during the month of September we will continue our virtual Community Meetings on Medicare. Dates are Sept 20 and Sept 22.

Richard J. Schillig, CLU, ChFC, LUTCF is an Independent Insurance and Financial Advisor with RJS and Associates, Inc. He can be reached at (563) 332-2200.

Filed Under: Finance, Retirement

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