By Todd Casazza, CFP® and Patrick Diamond, CFP®
Every Fall, the Social Security Administration announces a cost-of-living adjustment (COLA) for the millions of Americans who receive Social Security benefits. On Thursday October 13th it announced a COLA increase of 8.7% to take effect in December of this year.
The adjustment is the highest in over 40 years and follows last year’s hike of 5.9%. What’s unique about this year is that Medicare Part B premiums, which are often deducted directly from Social Security payments, will be reduced for the first time in more than a decade. This means more money in the pockets of seniors. Decisions around Social Security elections and Medicare’s alphabet soup of services can be confusing, so we’ve summarized a few key points to this year’s unusual changes to help retirees (and those approaching retirement) make informed decisions.
And remember, October 15th marks the beginning of Medicare Open Enrollment, and it runs through December 7th. During the annual open enrollment period participants enrolled in traditional Medicare can switch to a Medicare Advantage plan, and Advantage members can switch to a different plan or back to original Medicare. If you’d like assistance, you can call Medicare at 1-800-Medicare or contact your local State Health Insurance Assistance Program (SHIP) for advice.
Let’s run through the Social Security and Medicare numbers and some other things you should know:
- An 8.7% COLA will be reflected in January 2023 Social Security payments.
- Why is the COLA so large this year?
- We all know inflation has been in the news this year. Historically speaking, inflation is around 2-3%, but it has jumped higher due to several reasons including COVID-19’s continued impact on workers and supply chains as well as consumers’ demand for goods and services. The Social Security COLA is directly tied to how the government tracks inflation.
- The latest inflation report from the Labor Department on October 13th showed that the core consumer-price index (core-CPI)—which excludes energy and food prices—rose 6.6% in September from a year earlier, the biggest increase since August 1982. Part of why prices rose by so much last month was shelter costs, which largely reflects rents (but doesn’t impact those who own their home or have a mortgage). Shelter costs account for about a third of the Labor Department’s overall consumer-spending basket, which rose by 0.7% in September from a month earlier. Excluding shelter, overall prices would have risen only 0.2%.
- Medicare Part B premium lowered by $5.20 in 2023, to $164.90.
- This comes after a 14.5% increase in 2022 which saw premiums raised from $148.50 to $170.10, the highest figure on record for Medicare Part B premiums.
- Medicare Part A costs $0 for most people (because they or a spouse paid Medicare taxes long enough while working–generally at least 10 years). For those that do pay, Medicare Part A premiums will increase slightly in 2023.
- The costs for Part C and Part D coverage will vary greatly between individuals because they are reflective of local state funding efforts and the price of the prescription drugs that you may be taking and claiming through Medicare.
- Why is my Medicare Part B premium going down?
- Part B coverage focuses on medical services including doctors visits and services, outpatient hospital care, physical and speech therapy, ambulance services, mental health support and certain outpatient prescription drugs.
- A key driver of the 2022 hike was a projected jump in spending due the price of Aduhelm, a new and expensive drug to treat Alzheimer’s disease. However, since then, Aduhelm’s manufacturer has cut the price and the Centers for Medicare & Medicaid Services (or “CMS”) limited coverage of the drug.
- Also, spending was lower than CMS projections on other Part B items and services, which resulted in much larger reserves in the Part B trust fund, allowing the agency to limit future premium increases.
What if you are still deciding when to start claiming your Social Security benefits? When it comes to questions about when to claim Social Security, we often tell clients there is no one size fits all solution. That’s where the value of financial planning comes in because we work with our clients to evaluate their claiming strategy decision based on how much they’ve saved for retirement, their other sources of income in retirement, their health and wellness, and expectations for longevity. We do this level of cashflow analysis and planning for our individual and married clients (who may be planning two retirements on different schedules).
There are some general principles, however, that everyone should be familiar with regards to their Social Security benefits. Every year that you delay you get a big bump up in your monthly or annual benefit. For households that have a concern about boosting the amount of guaranteed income coming in, this is definitely a good way to do that.
If you start receiving benefits early, your benefits are reduced a small percent for each month before your full retirement age or “FRA” (which generally falls somewhere between ages 66 and 67 depending on the year you were born). For every year you delay claiming Social Security past your FRA up to age 70, you get an 8% increase in your benefit. So, if you can afford it, waiting could be the better option. That could be at least a 24% higher monthly benefit if you delay claiming until age 70. And your annual cost-of-living adjustment is based on your benefit. So if you begin claiming Social Security at 62 and start with reduced benefits, your COLA-adjusted benefit will be lower too.
If you want to have a more in-depth discussion around planning your own Social Security claiming strategy give us a call at (401) 356-1400 or email us at firstname.lastname@example.org to set up a meeting.
The information provided in this article is for general educational purposes only and is not intended to provide any investment, tax, or legal advice
 20-year Breakeven Inflation Rate was 2.61% in September of 2022, according to the Federal Reserve.
 The COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. According to the Labor Department, for the second year in a row, the Social Security COLA actually exceeds estimates of how much costs increased for retirees and seniors. This is based on a different index that attempts to measure the actual rate of inflation for those over 62 called the CPI-E, which is produced by the Labor Department’s Bureau of Labor Statistics. The “E” in the CPI-E stands for “elderly.” The CPI-E and the CPI-W are different in order to reflect the fact that people 62 and older don’t spend the same way as younger consumers with more of their spending going to medical care and housing and less to transportation.