Starting in January, about 70 million Americans will see a welcome change in their Social Security payments as benefits will increase more than they have in 41 years.
Social Security benefits will increase by an average of 8.7%, or about $146 per month, to $1,827 per month, due to annual cost of living (COLA) adjustments. This increase is tied to the increase we have seen this year in the Consumer Price Index (CPI), a measure of inflation. This is the biggest increase in COLA since 1981 when monthly benefits increased 11.2%. The year before, in 1980, they were up 14.3%.
But there is another financial benefit seniors should see in 2023, as Acting SSA Commissioner Kilolo Kijakazi recently pointed out.
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Social Security benefits increase, Medicare premiums fall
“Medicare premiums are falling and Social Security benefits will go up in 2023, which will give seniors more peace of mind and comfort. The Social Security cost-of-living adjustment is worth it. This year for the first time in more than a decade, Medicare premiums Kijakazi said:
As the acting commissioner mentioned, seniors will see their Medicare premiums drop in 2023, starting January. This is a rare occurrence, as it has only happened a few times over the past 50 years, the last time being in 2012. The Centers for Medicare and Medicaid Services (CMS) says premiums. standard monthly would be $164.90 for 2023, down to $5.20 from $170.10 this year. The annual deduction will be $226 in 2023, down $7 from 2022.
The drop was partly because projected spending on some drugs in 2022 was lower than anticipated, so the savings carried over.
Higher Social Security benefits and lower Medicare premiums will partially offset the difficulties seniors face when paying higher prices for everything from gas to food. But is it enough?
According to a recent survey by The Motley Fool of 750 retired Americans, 85% said they’ve noticed the impact of inflation on their daily spending and it’s hurting their budgets. prolonged. Furthermore, 55% of those surveyed said an 8.7% increase in COLA was insufficient while around 40% said it was.
Inflation is on a downward trend
Retirees should know that the rate of inflation is falling. In November, inflation increased by 7.1% year-on-year, which is a very high level in history, but has fallen from a high of 8.5% in August.
The Federal Reserve has aggressively raised interest rates to reduce inflation. On December 14, the Fed raised rates again, raising the federal funds rate by 50 basis points to a range of 4.25% to 4.5%. This is a slightly lower rate of increase than the previous four meetings, when the rate increased by 75 basis points in each meeting.
“The Committee anticipates that a sustained increase in the target range will be appropriate to achieve a sufficiently restrictive monetary policy stance to bring inflation back to 2% over time,” according to a statement from the committee. Fed’s Federal Open Market Committee (FOMC). ).
So when will inflation return to the Fed’s preferred 2%? The Federal Reserve makes such predictions at every FOMC meeting, and at its last meeting this week, the consensus called for inflation to hit 3.1% by the end of 2023.
The Fed uses personal consumption expenditures (PCE) as its preferred measure of inflation — and it expects that number to stay at 5.6% by the end of 2022, 3.1% by the end. 2023, 2.5% in 2024, and 2.1% in 2025. These are just projections and they obviously can — and often do — change. In fact, in September, the Fed forecast PCE inflation to be at 2.8% by the end of 2023, so expectations have increased since then. But ultimately, it suggests that inflation will drop lower in 2023.
Lower inflation, combined with an 8.7% increase in monthly benefits, should give retirees slightly more purchasing power in 2023 than they do now, if inflation does indeed drop. It could make up for 2022, when many retirees lose purchasing power as benefits rise by 5.9%, which turns out to be below the rate of inflation.
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