The forecast for next year’s Social Security increase rose to 3.2% from 3% on Wednesday after the government said inflation ticked up in August.
Annual inflation in August rose to 3.7%, from 3.2% in July but off a 40-year high of 9.1% in June 2022. Without the volatile food and energy sectors, the so-called “core” inflation rate rose 4.3%, down from July’s 4.7%.
Energy declined 3.6% over the year while food rose 4.3%, compared with a 12.5% drop and 4.9% increase, respectively, in July. Shelter, which includes rents, jumped 7.3% over the last 12 months but it was still softer than July’s 7.7% gain.
Although inflation remains much higher than the Federal Reserve’s 2% target, the trend remains mostly lower, which means Social Security recipients will see a lower cost-of-living adjustment (COLA) of 3.2% next year, according to a forecast from The Senior Citizens League, a nonprofit seniors group. That’s less than half of the four-decade high 8.7% COLA in 2023 but still higher than the 2.6% average over the past 20 years.
Lower inflation is welcomed, but “the harsh reality is that the amount that the COLAs increase benefits in most years is meager at best,” said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League.
Seniors haven’t kept up, and inflation made it worse
Annual COLAs are meant to ensure Social Security beneficiaries’ purchasing power isn’t eroded by inflation. However, COLA hasn’t kept pace, and seniors were the only group that saw its share of poverty increase between 2020 and 2021, the Census Bureau said. On Tuesday, the Census Bureau also reported the older adult poverty rate jumped to 14.1% in 2022 from 9.5% in 2020 and 10.7% in 2021, after accounting for government cash and noncash benefits, geography, taxes and necessary expenses.
Social Security only replaces roughly one-third of a middle earner’s average wages, according to an Actuarial Note from the Social Security Office of Chief Actuary. Making matters worse, 59% of older adults start Social Security benefits before reaching full retirement age and receive permanently reduced benefits, according to a poll of 2,259 retirees surveyed this month by The Senior Citizens League.
Even though inflation this year has been running below the 8.7% beneficiaries received, seniors haven’t been able to recoup the losses they incurred in the past two years when inflation reached a 40-year high, Johnson said.
“Inflation was so severe in 2021 and 2022 that the average Social Security benefit fell behind by $1,054, leaving 53% of retirees doubting they will recover because household costs rose more than the dollar amount of their COLAs,” she said.
Medicare Part B wildcard
Seniors also worry every year about what they’ll have left of their COLA increase after Medicare Part B premiums, typically announced in November, are paid. Medicare Part B premiums, which are higher among high-income folks, are automatically deducted from monthly Social Security payments.
In March, the Medicare Trustees forecast monthly Part B premiums to increase to $174.80 next year, up from $164.90 this year. However, that doesn’t include costs that come up after the estimate is released. One such cost could be Medicare’s initiating coverage in July of another new Alzheimer’s drug: lecanemab, known by the brand name Leqembi.
If just 5% of the 6.7 million older U.S. adults with Alzheimer’s disease take Leqembi, at the annual list price of $26,500, this would add $8.9 billion to Medicare Part B spending annually, assuming all are enrolled in Part B, according to the nonpartisan research group KFF. A 10% take-up rate would amount to $17.8 billion in higher spending, it said.
“Higher Medicare Part B spending would likely lead to higher Medicare Part B premiums, which are set to cover roughly 25% of program costs,” KFF said.
Johnson forecasts that the drug and related Part B services required to administer and monitor the patient for dangerous side effects of Leqembi would add about $5 per month to the Part B premium for everyone, potentially raising the 2024 premium to about $179.80 per month.
But “most beneficiaries may see their Part B premium rise by almost $15 per month from 2023,” she said, noting “other costs could drive Part B premiums even higher.”
More seniors are also paying taxes on Social Security
Taxes eat into Social Security benefits, too.
In a survey of 1,759 retirees by The Senior Citizens League in mid-July, more than one in five Social Security beneficiaries (23%) said they paid taxes on a portion of their benefits for the first time this past tax season (April 2022). The tax return for 2022 reflected a 5.9% COLA increase in Social Security benefits.
“We expect the number who pay tax on a portion of their Social Security benefits to jump even more as next year’s tax season reflects the 8.7% COLA increase in 2023,” Johnson said.
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How are seniors coping?
With 79% of respondents in July saying essential items were pricier than a year ago, most are putting off medical care to pay for daily living expenses, the survey said.
Nearly 2 out of 3 have postponed dental care including major services such as bridges, dentures, and implants to cope, while 43% said they’ve delayed optical exams or getting prescription eyeglasses. A third have postponed getting medical care or filling prescriptions due to deductibles, out-of-pocket costs, and unexpected bills.
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How is COLA calculated?
Social Security Administration (SSA) bases its COLA each year on average annual increases in the consumer price index for urban wage earners and clerical workers, or CPI-W, from July through September. CPI-W largely reflects the broad CPI that the Labor Department releases each month but differs slightly. Last month, while the CPI rose 3.7%, the CPI-W increased 3.4%.
The Seniors Citizens League uses the most recent inflation data to keep a running projection of what COLA might be next year. July and August are particularly important because they make up two of the three months SSA officially uses to calculate 2024’s COLA.
How many Americans qualify for the COLA increase?
About 70 million Americans receive benefits from programs administered by SSA, with retired workers and their dependents accounting for 76.9% of benefits paid in 2022.
Nearly 9 out of 10 people aged 65 and older received a Social Security benefit as of Dec. 31. Among them, 12% of men and 15% of women rely on Social Security for 90% or more of their income.
In July, the average monthly check for Social Security beneficiaries was $1,703.98, according to SSA. A 3.2% COLA would mean about an extra $54.50 each month.
When is Social Security COLA announced?
The next COLA will be announced in October and be effective starting January 2024.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday.
This article originally appeared on USA TODAY: Social Security COLA prediction for 2024 rises after August CPI report
