Social Security benefits are set to increase in 2023, possibly by their highest rate in 40 years, according to a forecast from the Senior Citizens League.  (iStock)

After June’s inflation reading, Social Security Administration (SSA) benefits may increase even more than previously expected, according to a new forecast from the Senior Citizens League.

Social Security could see a cost-of-living adjustment (COLA) of 10.5% for 2023, based on inflation data, the group said. It previously forecasted that Social Security payments would rise 8.6% in 2023.

COLA is determined using the Consumer Price Index (CPI) inflation measurement tool from the Bureau of Labor Statistics (BLS). For 2022, it grew 5.9% and resulted in a monthly bump of $92 for the average retiree, according to the SSA. This year’s increase was the largest for beneficiaries since 1982, when payments went up by 7.4%. For comparison, SSA payments grew by just 1.3% in 2021.

Inflation surged in June to a new 40-year high, marking the fifth time it’s broken that record this year. The CPI increased by 9.1% annually, hitting its highest point since November 1981, according to BLS. This is up from May’s annual increase of 8.6%. On a monthly basis, inflation jumped 1.3% from May to June.

About 50% of seniors rely on Social Security benefits for at least half their income, and about 25% rely on these benefits for their entire earnings, according to the SSA.

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COLA increase may not be enough for beneficiaries

Although Social Security benefits could increase at their highest rate in 40 years, there could still be problems for retirees dependent on Social Security income. Experts say this is because COLA doesn’t factor in key costs for senior citizens. 

For example, it does not account for Medicare Part B premiums, which rose 14.5% in 2022, one of the highest jumps in the program’s history, according to the Senior Citizens League. Part B premiums are automatically deducted from Social Security checks. What’s more, higher incomes can lead to a loss of health and prescription drug benefits for low-income beneficiaries. 

And the historically high forecasted increase could lead to high taxes for individuals whose incomes rise above $25,000, the group said.

“The Senior Citizens League believes tens of thousands of retirees who have not paid taxes on their benefits in the past, may discover they must start doing so in 2023,” the group said. “Because the income thresholds are not adjusted like ordinary tax brackets, these once-in-a-lifetime COLA increases could lead to permanently higher taxes for many retirees.”

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Social Security funds could last longer than expected

The SSA recently released its new outlook for its trust funds, showing its funds may last a bit longer than it previously expected.

Social Security funds are now projected to deplete by 2035, one year later than the SSA said in its projection last year. When this happens, benefits paid out to Social Security recipients will be slashed by 80%.

The total combined assets of the OASI Trust Fund and DI Trust Fund decreased by $56 billion in 2021 to a total of $2.85 trillion. The total annual cost of the program is projected to exceed its total annual income in 2022. In fact, Social Security’s cost has been exceeding its income since 2010.

If you are looking to organize your finances ahead of next year’s Social Security benefits changes, you could consider using a personal loan to help pay down debt. To see if this is the right option for you, contact Credible to speak to a personal loan expert and get all of your questions answered.

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