The forecast for the Social Security increase next year rose to 3.2% from 3% on Wednesday, after the government said inflation had risen in August.
Annual inflation in August rose to 3.7%, up from 3.2% in July, but down from a 40-year high of 9.1% in June 2022. Without the volatility of the food and energy sectors, the so-called “core” inflation rate increased by 4.3%, down from 4.7% in July.
Energy fell 3.6% for the year, while food rose 4.3%, compared with a 12.5% decline and 4.9% increase, respectively, in July. Housing, which includes rents, is up 7.3% over the past 12 months, but that’s still a smaller increase than July’s 7.7% increase.
While inflation remains much higher than the Federal Reserve’s 2% target, the trend remains mostly lower, meaning Social Security beneficiaries will see a 3.2 percent lower cost-of-living adjustment (COLA). % next year, according to a forecast from The Senior Citizens League, a nonprofit seniors group. That’s less than half the high COLA of 8.7% seen over four decades in 2023, but still higher than the 2.6% average over the past 20 years.
Lower inflation is welcomed, but “the stark reality is that the amount by which COLAs increase benefits in most years is meager at best,” said Mary Johnson, a policy analyst at Social Security and Medicare at the Senior Citizens League.
Seniors haven’t kept up, and inflation has made things worse
Annual COLAs are intended to ensure that Social Security recipients’ purchasing power is not eroded by inflation. However, the COLA did not keep pace, and seniors were the only group that saw their share of poverty increase between 2020 and 2021, the Census Bureau said. On Tuesday, the Census Bureau also reported that the senior poverty rate rose to 14.1% in 2022 from 9.5% in 2020 and 10.7% in 2021, after accounting for state cash benefits and non-monetary, geography, taxes and necessary expenses.
According to an actuarial note from the Social Security Office of the Chief Actuary, Social Security only replaces about a third of the average wage of a middle-income worker. To make matters worse, 59% of seniors begin receiving Social Security benefits before reaching full retirement age and receive permanently reduced benefits, according to a survey of 2,259 retirees conducted this month by the Senior Citizens League.
Although inflation this year was lower than the 8.7% recipients received, seniors have been unable to recover the losses suffered over the past two years, when inflation hit 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 amount in dollars from their COLAs,” he said.
Medicare Part B wildcards
Seniors also worry each year about what will be left of their COLA increase after paying their Medicare Part B premiums, typically announced in November. Medicare Part B premiums, which are higher among high-income people, are automatically deducted from your monthly Social Security payments.
In March, Medicare administrators predicted that monthly Part B premiums will increase to $174.80 next year, up from $164.90 this year. However, this does not include costs that emerge after the estimate is published. One of those costs could be Medicare starting 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 Americans with Alzheimer’s disease took Leqembi, at an annual list price of $26,500, that would add $8.9 billion to annual Medicare Part B spending, assuming everyone is enrolled in Part B, according to impartial research. KFF group. A 10% adoption rate would equate to an increased expense of $17.8 billion.
“Higher spending on Medicare Part B would likely lead to higher Medicare Part B premiums, which are expected to cover about 25% of program costs,” KFF said.
Johnson projects that the drug and related Part B services needed to administer and monitor the patient for Leqembi’s dangerous side effects would add about $5 a month to the Part B premium for everyone, potentially raising the 2024 premium to about $179, $80 a month.
But “most beneficiaries could see their Part B premium increase by nearly $15 a month starting in 2023,” he said, noting that “other costs could push Part B premiums even higher.”
More and more seniors are also paying Social Security taxes
Taxes also affect Social Security benefits.
In a survey of 1,759 retirees conducted by the Senior Citizens League in mid-July, more than one in five Social Security recipients (23%) said they paid taxes on a portion of their benefits for the first time last tax season ( April 2022). . The 2022 tax return reflected a 5.9% COLA increase in Social Security benefits.
“We expect the number of those paying taxes on a portion of their Social Security benefits will increase even more as next year’s tax season reflects the 8.7% COLA increase in 2023,” he said Johnson.
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How do the elderly fare?
With 79% of July respondents saying essential goods were more expensive than a year ago, most are putting off medical care to pay for daily expenses, the survey found.
Nearly 2 in 3 people have put off dental care, including major services like bridges, dentures and implants, while 43% said they have delayed getting eye exams or purchasing eyeglasses. One-third have put off getting medical care or filling prescriptions due to deductibles, out-of-pocket expenses and unexpected bills.
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How is the COLA calculated?
The Social Security Administration (SSA) bases its COLA each year on average annual increases in the Consumer Price Index for Urban Wage Earners and Workers, or CPI-W, from July through September. The CPI-W largely reflects the overall CPI that the Department of Labor releases each month, but differs slightly. Last month, while the CPI rose 3.7%, the CPI-W rose 3.4%.
The Seniors Citizens League uses the latest inflation data to maintain a rolling projection of what the COLA could be next year. July and August are particularly important because they constitute two of the three months officially used by the SSA to calculate the 2024 COLA.
How many Americans are eligible for the COLA increase?
About 70 million Americans receive benefits from programs administered by the SSA, with retired workers and their dependents accounting for 76.9% of benefits paid in 2022.
Nearly 9 in 10 people age 65 and older received a Social Security benefit as of Dec. 31. Among them, 12 percent of men and 15 percent of women rely on Social Security for 90 percent or more of their income.
In July, the average monthly check for Social Security recipients was $1,703.98, according to the SSA. A COLA of 3.2% would mean about $54.50 more each month.
When is the Social Security COLA announced?
The next COLA will be announced in October and will take effect starting in January 2024.
Medora Lee is a money, markets and personal finance reporter at USA TODAY. You can reach her at firstname.lastname@example.org and sign up for our free Daily Money newsletter for personal finance tips and business news every Monday.
This article originally appeared on USA TODAY: Social Security COLA forecast for 2024 rises after August CPI report