Inflation Causes Largest Social Security Increase in 41 Years

On October 13th, the Social Security Administration announced that the cost-of-living-adjustment (COLA) for Social Security benefits would increase by 8.7% in 2023. This increase is the fourth-largest jump in Social Security’s history.

Starting in January 2023, the average retiree will see their benefits increase by nearly $150 per month (the average monthly benefit in September 2022 was $1,673.88). This also means that the average retiree receiving spousal benefits can expect a monthly increase of roughly $75.

Social Security vs. Inflation

Last year, as Social Security benefits began their large increases, we posted Why the Social Security Increase Isn’t as Much as You Think. With another record-high COLA coming in 2023, it is worth pointing out again that this raise may be too little and too late.

As inflation soared in 2022, retirees have already experienced record-high costs of goods and services. The Social Security increase in January will only bring retirees back to the “status quo” before the cost of goods and services skyrocketed.

Rising Medicare Costs

Last year, the average retiree saw their social security benefits increase by almost $100 per month, but the increase was not fully passed on as the cost of Medicare also increased by over $20/month in 2022.

Fortunately, Medicare is giving some of the increase back in 2023. For only the fourth time in Medicare’s history, premiums will be decreasing.

Why are Medicare premiums decreasing with inflation at record highs?

The large increase in 2022 was due to the anticipated cost of the Alzheimer's disease drug Aduhelm. However, the Centers for Medicare and Medicaid Services (CMS) decided not to provide reimbursement for Aduhelm. As a result, the 2023 premiums will be lower than they were in 2022, and there will be less prescription drug coverage available to participants.

Social Security, Medicare, and Inflation

The chart below highlights the key issue with relying on Social Security benefits in retirement. Even though your Social Security COLA may feel like a raise, it is designed to simply keep up with inflation (using the Consumer Price Index) and Medicare.

Timeframe	General Inflation (CPI)	SSA COLA	Medicare Part B Change
1970's	7.4%	6.1%	6.1%
1980's	5.1%	6.2%	11.5%
1990's	2.9%	3.1%	4.8%
2000's	2.5%	3.0%	9.3%
2010-2016	1.7%	1.1%	4.2%
2017	2.1%	2.0%	10%
2018	2.4%	2.8%	0%
2019	1.8%	1.6%	1.1%
2020	1.2%	1.3%	6.7%
2021	4.7%	5.9%	2.7%
2022*	8.2%	8.7%	14.5%

Summary

As record setting social security living adjustments lead to higher taxpayer expenses in the future, retirement planning needs are shifting. With Social Security set to dramatically reduce benefits in 2035, relying heavily on Social Security for retirement income is not a winning strategy.

Having alternative sources of income will be key to thriving in retirement. Schedule a time to speak with us today to build the road map that leads to peace of mind knowing that the productivity of your assets has been optimized and all of your financial decisions are perfectly aligned with your most deeply held values and long-term goals.

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