A bigger inflation-boosted Social Security check and, yes, hope for some relief from the headaches caused by high prescription drug costs are on the the horizon. And for many retirees, the budget relief can’t be quick enough.
Inflation is brutal for lower-income consumers, including millions of retirees, who don’t have any or much savings to tap into as the cost of gas, groceries and rent climb higher and higher.
Thanks to surging inflation, though, those collecting Social Security benefits can look forward to a Social Security payout that’s roughly 8% to 9% higher in 2023, based on early estimates.
Extra $1,800 a year could be ahead
On average, a retiree could see about an extra $150 a month — if there’s a 9% cost of living adjustment to Social Security for next year — based on an example for current benefits of around $1,656 a month. A cost of living adjustment in this example would be an additional $1,800 a year.
We must wait until October for the official cost of living adjustment for 2023 to be announced by Social Security Administration.
“This will be one of the highest COLAs ever paid in the history of the program,” predicted Mary Johnson, a Social Security policy analyst for The Senior Citizens League, a nonprofit advocacy group.
Based on consumer price index data for the year through July, the COLA adjustment could be around 9.6% if inflation continued at a similar pace.
If inflation heats up in the months ahead, that adjustment could jump a bit to around 10.1%, according to estimates from the Senior Citizens League.
If inflation cools down more in the months ahead, the adjustment would drop and could end up at an 8% to 9% range, according to estimates.
Only two months of consumer price data — August and September — are left to go for the adjustment to be calculated. The September data is to be announced Oct. 13 by the U.S. Bureau of Labor Statistics.
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A few years had such sizable gains
The inflation adjustment for Social Security benefits was very high at 5.9% in 2022. The cost-of-living adjustment began with benefits payable to more than 64 million Social Security beneficiaries in January 2022.
But you’d have to go back to 1979, 1980 and 1981 for any inflation adjustment that would be 9% or higher. The highest COLA was 14.3% in 1980.
Johnson said the deepest impact of inflation has been felt by those older adults who aren’t bringing home any paycheck, even a small one; as well as seniors who don’t have a pension or any savings.
“Every COLA is meaningful,” Johnson told the Free Press, “because Social Security is one of the only forms of retirement income that is adjusted for inflation.”
If you need about 10% more money now, for example, to buy the exact same groceries and other goods you bought a year ago, you’re going to drain whatever savings you have much faster.
While you can trim some spending by turning to generic brands, eating less meat or going out for lunch less often, everything we buy isn’t discretionary and cannot be scratched off a shopping list.
Inflation was high last year — and it soared even more so far in 2022. July did show improvement when the month-to-month change was flat, reflecting in part a 7.7% decline in gasoline prices in the month.
Retirees couldn’t keep up with inflation this year, though, as many pensions aren’t adjusted for inflation — and many retirees do not have pensions at all.
While an inflation adjustment for Social Security benefits helped this year based on 2021’s data, for example, it did not reflect all the continued inflationary pressures in 2022.
Inflation has been running at a much hotter pace than the 5.9% inflation adjustment that was given in 2022 to retirees and people receiving Supplemental Security Income payments, which are made to those with a disability or blindness who have income and resources below specific limits.
Over the 12 months ending July, the Consumer Price Index rose 8.5%. For year over year in June, the inflation index climbed 9.1%.
“The actual COLA we received has fallen short of actual inflation,” Johnson said. The group estimates that the shortfall is roughly $58 a month on a $1,656 monthly Social Security benefit.
Some of that might even out a bit here in 2023.
“With the next COLA that we get, we may be in a little bit better position,” she said. “I don’t know how much longer inflation will continue at its current pace.”
Richard Johnson, director of the Program on Retirement Policy at the Urban Institute, said no one can say for certain how much Social Security benefits will increase in 2023.
If one assumes that energy prices continue to decline in August and September as they did in July, which Johnson said seems likely, and other prices continue growing at recent rates, Johnson estimated that next year’s Social Security COLA would be 8.7%.
If energy prices hold steady for the next two months, he said, the COLA could be as high as 9.3%.
“The increase will help seniors a lot, especially those who depend most on Social Security,” he said.
“But the adjustment only gets them back to where they were at the beginning of the year before prices really took off. Every time prices increase in 2023, they’ll continue to fall behind.”
Johnson noted that the cost of living adjustment for Social Security doesn’t perfectly reflect how Social Security beneficiaries spend money to cover their expenses because the index is tied to spending by urban wage earners and clerical workers, who are mostly too young to collect Social Security.
Overall, “seniors have actually fared a bit better in terms of inflation than younger people,” Johnson said.
He noted that the Bureau of Labor Statistics computes an alternative index to reflect spending by people ages 62 and older known as the CPI for the Elderly, which gives less weight to transportation and more weight to medical care and housing than the standard inflation measure.
Johnson said the CPI for the Elderly has increased slightly less than the standard CPI over the past 10 months because it gives less weight to transportation and energy. Energy prices, of course, have increased tremendously over the past year.
Some seniors benefited as prescription drug prices increased only 2.8% over the past 12 months, Johnson said, much less than the overall inflation rate.
Every extra dollar counts in retirement.
The problem for many households, including those headed by some retirees, is that personal savings are extremely limited to cover all those higher prices at the grocery store and elsewhere, prices that aren’t likely to tumble even if inflation rates cool down.
About 48% of households headed by someone aged 55 and over had no retirement savings in 2016, based on research released in 2019 by the U.S. Government Accountability Office.
Some of those families could have a pension that can help provide a monthly stream of income, but that same study showed that 29% of such households had no pension and no retirement savings.
Inflation creates more uncertainty
Not surprisingly, perhaps, half of retirees who feel less confident about their ability to live comfortably in retirement blamed inflation for triggering more anxiety, according to the 2022 Retirement Confidence Survey conducted by the Employee Benefit Research Institute and Greenwald Research.
Inflation hasn’t been a worry for decades but now those who are retired or planning for retirement need to consider what higher prices will mean to their 401(k)s or limited savings.
One key point: If you’re at least 62 or older in 2023, you’d benefit automatically from next year’s COLA increase — even if you have not yet filed to receive Social Security benefits.
Inflation adjustments are baked into future payments each year until you claim benefits as long as you’re 62 or older in 2023.
The Social Security Administration notes: “You’re eligible for cost-of-living benefit increases starting with the year you become age 62. This is true even if you don’t get benefits until your full retirement age or even age 70.”
Ultimately, getting inflation and some costs under control again would help a great deal.
Prices at the pump in Michigan, after soaring to a record $5.22 a gallon in June, are finally falling back near to levels last seen in April, according to AAA Michigan.
Michigan drivers are now paying an average of $3.95 a gallon, according to AAA’s data released on Aug. 15. That’s down 77 cents a gallon from a month ago but up 69 cents a gallon from this time last year.
Savings on gasoline can help consumers deal with other big bills, such as groceries and other necessities.
For retirees, the Inflation Reduction Act of 2022 offers some hope that they’ll soon see relief on drug costs but most changes aren’t immediate.
The new federal law limits out-of-pocket costs for Part D prescription drugs covered under Medicare to $2,000 beginning in 2025.
One change in 2023: Beginning next year, the new law limits co-payments to $35 per month per prescription for covered insulin products in Medicare Part D plans and for insulin furnished through an external insulin infusion pump under Medicare Part B, with no deductible.
Many who receive Medicare are worried about some higher premium costs in 2023. Often retirees are frustrated that their Medicare Part B premiums have been increased aggressively and cut into that inflation adjustment on Social Security benefits.
But fingers crossed, retirees might not face that same challenge next year.
Medicare Part B covers doctor visits and outpatient care, as well as some drugs. The changes for any Part B premium would likely be announced in mid-November.
Last November, the Centers Medicare & Medicaid Services announced that the Medicare Part B monthly premium rate would be $170.10 in 2022 — a 14.5%…
Read More:Social Security benefits to increase in 2023 with COLA adjustment
2022-08-16 20:37:30
