Inflation is at a 40-year high and interest rates keep increasing. However, there is a silver lining in these uncertain times, especially for Social Security Beneficiaries: the potential for a substantial cost of living adjustment in 2023.
As of now, projections for the adjustment are as high as 10%, but this may change based on the direction of inflation in the second half of 2022. Below are important factors Social Security beneficiaries should keep their eye on as we move towards 2023.
For weekly insights, follow The Welch Group every Tuesday morning on WBRC Fox 6 for the Money Tuesday segment.
Determining Cost of Living Adjustments (COLA)
While expectations for the COLA in 2023 are high, it is important to remember a couple of things about how the adjustment is calculated. First, it is based on the 3rd Quarter inflation readings and not the worrisome readings we experienced over the first 6 months of the year. Second, the inflation reading used to determine the COLA is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is different than the more highly followed Consumer Price Index for all Urban Consumers (CPI-U) number published monthly.
According to the US Bureau of Labor Statistics “CPI-W is based on the expenditures of households included in the CPI-U definition that meet two requirements: more than one-half of the household’s income must come from clerical or wage occupations, and at least one of the household’s earners must have been employed for at least 37 weeks during the previous 12 months. The CPI-W population represents about 29 percent of the total U.S. population and is a subset of the CPI-U population.”
Will Medicare Affect COLA?
The actual dollar increase Social Security beneficiaries will experience in 2023 depends on the change in their Medicare Part B premiums, which are typically withheld from monthly Social Security checks. For example, in 2022 while Social Security beneficiaries received a COLA of 5.9%, much of this was not seen by beneficiaries due to a 14.5% increase in Medicare Part B premiums. With that said, an increase in Medicare B for 2023 is NOT likely. In fact, it appears Medicare Part B premiums may be reduced based on an overestimation of costs associated with a controversial new Alzheimer’s drug (Aduhelm), as laid out in this HHS.gov press release. Still there are no guarantees.
As you begin planning for 2023 adjustments related to Social Security, be sure to a Certified Financial Planner as every situation is different.
Marshall Clay CFP, J.D., is a Partner and Senior Advisor at The Welch Group, LLC, specializing in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™. In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Welch Group, LLC –(“Welch“), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Welch. Please remember that if you are a Welch client, it remains your responsibility to advise Welch, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Welch is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Welch‘s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.welchgroup.com. Please Note: Welch does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Welch‘s website or blog or incorporated herein, and takes no responsibility.