Amidst drastic inflation and the lingering stress of the pandemic, the annual Cost of Living Adjustment (COLA) for Social Security benefits has been announced to be the largest in more than 40 years.
This annual adjustment allows seniors to have more room in their budget each month via bigger Social Security benefit checks. It also often affects Medicare Part B premiums. Read on to learn more about these historic changes and how they may affect your clients.
The 2023 Cost of Living Adjustment
Due to inflation, the Social Security Administration (SSA) increased Social Security benefits in 2021 by 5.9 percent — the largest COLA since 1982 — but the benefit for 2023 is even higher. The SSA has just announced that the COLA for 2023 will be 8.7 percent! Your clients who are receiving Social Security checks should have an additional average of $144.10 in their pockets each month.
This large raise is a result of the increasing costs of rent, groceries, energy bills, and so on. The SSA passes the COLA benefit to seniors to empower them and offset some of the financial stress they may experience.
When calculating the COLA, the U.S. Bureau of Labor Statistics uses data reported in the Consumer Price Index (CPI), which measures the cost of goods and services. The Bureau announced the CPI for January through September on October 13, at 8.2 percent.
The Social Security Administration has just announced that the COLA for 2023 will be 8.7 percent.
What Does This Mean for Your Clients?
Historically, an increase in COLA often also means a rise in Part B premiums. However, this is not the case for 2023. Due to discounts that were released this year, the Part B premium is decreasing.
Although COLA does offset some living costs, some seniors may experience a rise in health care costs. This could be concerning, especially if Medicare coverage costs also continue to rise while the annual COLA benefit does not increase at the same rate. But, there are protections built in for clients to prevent this issue from graduating to something more concerning. The “hold harmless” clause of federal law requires that “no increase in Part B premiums can reduce a Social Security recipient’s monthly check below what it was in the previous year.” However, it’s unlikely that the COLA updates will be able to keep up with the premium increases.
COLA also affects other aspects of Social Security. The following are a few differences you may notice in 2023:
- Increased maximum taxable earnings limit: A higher COLA means a higher max income subject to Social Security taxes. This is pertinent to beneficiaries who haven’t yet retired.
- Higher earnings limit: The earnings limit is especially important for those who receive Medicare benefits but also work part time or receive income. Benefits may be reduced if the earnings limit has been exceeded.
- Increased spousal, divorce, and SSI benefits: Those receiving spousal, divorce, or Supplemental Security Income (SSI) benefits from Social Security will see an increase in their 2023 benefits.
These changes will take effect in the coming months so notify clients to be looking out for more information.
When Will the Benefit Take Effect?
Benefit checks dated January 2023 will begin to reflect the annual increase. For beneficiaries born the first through the 10th of the month, clients will receive their benefits on the second Wednesday of the month. Those born from the 11th through the 20th, the third Wednesday of the month. Finally, individuals born between the 21st and the last day of the month, receive their benefits on the fourth Wednesday of the month.
Your clients should receive a letter in December providing specific benefit details. This information is also available on the Social Security website.
Benefit checks dated January 2023 will begin to reflect the annual increase.
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