The Social Security Administration announced an 8.7 percent increase in benefit checks for seniors beginning next year, in response to the fastest rate of inflation in the United States in four decades.
The change will affect approximately 70.3 million Social Security beneficiaries, including approximately 8 million recipients of Supplemental Security Income. According to the AARP, which represents seniors, the adjustment will increase monthly Social Security checks by about $145 per month on average.
Social Security is the most important source of retirement income for seniors in the United States, but rapid price increases in the last year have reduced the value of that income as well as other payments. The increase will help seniors adjust to higher living costs, but it will also put additional strain on Social Security’s finances, bringing the program’s trust fund’s expiration date forward.
The increase announced on Thursday is the most significant increase in Social Security payments in nearly four decades. In response to lower — but still significant — inflation in 2021, the Social Security Administration increased benefits by 5.9 percent at the start of this year. The adjustment is referred to as a cost-of-living adjustment, or COLA.
“The guaranteed benefits provided by Social Security, including the annual COLA, are more important than ever, as high inflation remains a problem for older Americans,” AARP CEO Jo Ann Jenkins said in a statement. “The automatic adjustment is an essential part of Social Security that helps ensure the benefit does not erode over time due to rising prices.”
The Social Security announcement coincided with the release of a separate monthly report on inflation by the federal government. Inflation has engulfed the Biden presidency, posing one of the most serious problems in the American economy, with wages failing to keep pace with price increases. Nonetheless, the Social Security adjustment could benefit the Biden administration politically, as it will result in larger checks for millions of American seniors.
According to Anqi Chen, assistant director of savings research at Boston College’s Center for Retirement Research, the automatic adjustment is especially important because many other sources of retirement income for seniors do not account for inflation. According to Chen, about half of the retirement income of middle-class retirees comes from Social Security, but much of the other half comes from 401(K) and IRA distributions, which are linked to investment returns.
She added that the federal government began indexing Social Security for inflation in the 1970s.
“A lot of stories say retirees have a fixed income, but they don’t because Social Security is indexed for inflation, which is a fantastic feature,” Chen explained.
Alex Lawson, executive director of Social Security Works, which advocates for program expansion, also cited lower Medicare premiums as a result of the Biden administration’s decision to limit coverage of a contentious drug that had driven premium increases in 2022. This change, which goes into effect next year, will allow seniors to keep more of their additional Social Security benefits than they would have been able to do otherwise. Lawson urged the administration to go further in reining in pharmaceutical behemoths in order to reduce seniors’ healthcare costs.
“Medicare Part B premiums are going down next year, which means Social Security beneficiaries will get to keep this increase rather than giving it to Big Pharma,” Lawson explained. “The Biden administration should use executive authority to expand on the Inflation Reduction Act’s drug pricing reforms and break up Pharma monopolies.”
In a statement Wednesday, White House press secretary Karine Jean-Pierre praised the Medicare changes, saying, “Seniors will have a chance to get ahead of inflation, thanks to the rare combination of rising benefits and falling premiums.” We will put more money in their pockets and give them some breathing room.”
Conservatives decried the increased payments, pointing out that Social Security had a $127 billion deficit in 2021 and could deplete its trust fund by 2034 under current projections. Romina Boccia, the Cato Institute’s director of budget and entitlement policy, said the index used by Social Security to calculate benefits is too generous and should be changed.
“Social Security is using an outdated measure that’s driving up benefit costs,” Boccia said in a statement before the announcement of the adjustment. “Reform is long overdue.