This Social Security quote is a must read
Beginning in January, some 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 8.7%, or about $146 per month, on average, to $1,827 per month, due to the annual cost-of-living adjustment (COLA). The increase is tied to the increase we have seen this year in the Consumer Price Index (CPI), which measures inflation. It is the largest COLA increase since 1981 when monthly benefits increased 11.2%. The previous year, in 1980, they increased by 14.3%.
But there’s another financial benefit that seniors should see in 2023, as acting SSA Commissioner Kilolo Kijakazi recently noted.
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Social Security benefits up, Medicare premiums down
“Medicare premiums are going down and Social Security benefits are going up in 2023, giving seniors more peace of mind and breathing room. This year’s substantial Social Security cost-of-living adjustment is the first time in more than a decade that Medicare premiums are not rising and shows that we can provide more support to older Americans who are counting on the benefits they’ve earned,” Kijakazi said.
As the acting commissioner mentioned, older people will see their Medicare premiums go down in 2023, starting in January. This is a rare occurrence, as it has happened only a few times in the past 50 years, most recently in 2012. The Centers for Medicare & Medicaid Services (CMS) said the standard monthly premium will be $164.90 by 2023, $5.20 less than $170.10 this year . The annual deductible will be $226 in 2023, $7 less than in 2022.
The decrease is partly due to the fact that projected spending on certain drugs in 2022 was lower than anticipated, so the savings are passing through.
the higher Social Security benefits and less Medicare the premiums should offset some of the hardship seniors have faced paying higher prices for everything from gas to groceries. But is it enough?
According to one recent poll by The Motley Fool Of 750 retired Americans, 85% said they’ve noticed the effects of inflation on their everyday spending and are stretching their budgets. Additionally, 55% of respondents said that the 8.7% COLA increase is not enough, while approximately 40% said it was OK.
Inflation trending down
Retirees should know that inflation rates have been gradually falling. In November, inflation rose to 7.1% year-on-year, a historically very high level, but below the peak of 8.5% in August.
The Federal Reserve Board has been aggressively raising interest rates to reduce inflation. On December 14, the Fed raised rates again, raising the federal funds rate by 50 basis points to the range of 4.25% to 4.5%. This was a slightly lower rate of increase than the last four meetings, when rates rose 75 basis points each.
“The committee anticipates that continued increases in the target range will be appropriate to achieve a monetary policy stance that is tight enough to return inflation to 2 percent over time,” according to a statement from the Federal Open Markets Committee of the Fed (FOMC). ).
So when will inflation return to the Fed’s preferred 2% rate? The Federal Reserve makes such predictions during every FOMC meeting and at the 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 expects that number to be 5.6% by the end of 2022, 3.1% by the end of 2023, 2.5% in 2024, and 2.1% in 2025. These are just projections and obviously can and do change. In fact, in September, the Fed projected that PCE inflation would be 2.8% by the end of 2023, so expectations have risen since then. But ultimately it shows that inflation should be coming down in 2023.
Lower inflation, combined with the 8.7% increase in monthly benefits, should give retirees a bit more buying power in 2023 than they do now, if inflation really slows. It could make up for 2022, when many retirees lost purchasing power as benefits rose 5.9%, which turned out to be less than the rate of inflation.
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