Navigating Senior Finances and Retirement

Millions of retired Americans depend on getting a Social Security payment each month to help make ends meet. But events in Washington could disrupt those payments.

It’s all because of something called the “debt ceiling,” which is the maximum amount of money the U.S. government is authorized by law to borrow. Each year Congress must vote to increase the amount to keep the government from defaulting.

This year, things are a little dicey. Since January Republicans have held a narrow majority in the House and have voted to increase the debt ceiling but only if Congress also votes to cut spending. Democrats still control the Senate and are insisting on a “clean” debt ceiling bill, promising to address spending in separate legislation.

So far, neither side has shown any willingness to budge and the deadline looms in early June. If there is no agreement the U.S. government would be in default and limited in what it can spend. Should that happen, seniors on Social Security could feel some pain.

“A default would hit the nation’s seniors especially hard, as the payment of Social Security, Medicare, and Medicaid benefits would be jeopardized,” the National Committee to Preserve Social Security and Medicare said in a statement. “This could be devastating for the 65 million older Americans on Social Security and the 63 million beneficiaries of Medicare.”

‘May not be made on time or in full’

The advocacy group has warned that without the legal authority to borrow beyond the current debt ceiling, Social Security, Medicare, Medicaid, and other payments “may not be made on time and in full.” The group says even a short delay in the payment of Social Security benefits would pose a burden for the millions of Americans who rely on their earned benefits to pay for out-of-pocket health care expenses, food, rent and utilities. 

What are the odds of a U.S. government default? Experts say it’s hard to gauge because it has never happened before.

In past government shutdowns, when lawmakers couldn't agree on a budget, there has been money available to pay entitlement benefits. A government default is uncharted territory.

Even if there is a default, Ed Mills, Washington policy analyst at Raymond James, believes it would be short-lived because of the political pressure it would unleash.

“If there is a scenario where seniors are not getting their Social Security checks, there would be a near immediate resolution of this fight,” Mills told CNBC.

Mills said the chances of Social Security checks not being sent are “exceptionally low.”

Seniors living on fixed incomes may be struggling with high inflation, but help could be on the way. The Senior Citizen’s League’s (TSCL) annual estimate for Social Security adjustments predicts that monthly benefits could rise to a near-record 9.6% next year.

The government adjusts Social Security benefit payments each year to account for inflation. With inflation running red hot in 2022,  TSCL predicts that we could see the largest cost of living adjustment (COLA) since 1981 next year.

The COLA is based on inflation readings by the Labor Department in July, August, and September. Even though some economists believe inflation peaked last month, when the Consumer Price Index (CPI) dipped to 8.5%, inflation is not expected to drop that much during this month and September.

The Social Security Administration will announce the increase in October, with the first payment reflecting the increase showing up in January 2023. Mary Johnson, policy analyst and editor of The Social Security and Medicare Advisor newsletter, estimates that payments could increase by as much as $159 a month.

"That’s really phenomenal," Johnson told NBC News. "Effectively, no one receiving Social Security at the moment will have received a COLA this high." 

A 9.6%  increase would follow last year’s 5.9% adjustment, which was the highest in decades. Because of low inflation, some years leading up to 2022’s adjustment saw no increase at all.

Medicare premiums are also likely to rise

Social Security recipients who are also on Medicare would likely not see the full amount of any benefit increase. The cost of Medicare premiums is deducted from Social Security payments and, because of inflation, those premiums are probably going to be more expensive in 2023.

Johnson believes even a 9.6% increase in benefits would probably not be enough for many seniors to keep up with the cost of living in a high inflationary environment. She cites a TSCL survey that found 37% of participants received low-income assistance last year.

A 2017 study by researchers at the Social Security Administration found that nearly 20% of Americans aged 65 and over received at least 90% of their total incomes from Social Security. 

Could the Social Security Administration (SSA) raise monthly Social Security checks to help seniors cushion the blow of inflation’s 40-year high? The Senior Citizens League says it’s highly possible based on a trusted running estimate for next year’s Social Security Cost of Living Adjustment (COLA). 

If an increase occurs, the average retiree would see their SSA benefit of $1,668 grow by $175.10 – about 10.5% – per month, which is much better than originally expected. A separate 2023 COLA estimate from the Committee for a Responsible Federal Budget predicted a 10.8% increase.

“If inflation runs ‘hot’ or higher than the recent average, the COLA could be 11.4%,” said Mary Johnson, Social Security and Medicare policy analyst with The Senior Citizens League. “If inflation runs ‘cold’ or lower than the recent average, the COLA could be 9.8%.”

If that 11.4% COLA increase happens, it would be the second highest increase in history behind the record 14.3% increase in 1980, the last time seniors saw a double-digit increase.

Medicare premiums may soon head lower

According to The Senior Citizens League, financial conditions for seniors have been deteriorating in recent years. The group estimates that SSA benefits recipients have lost 40% of their buying power since 2000.

“That’s the deepest loss in buying power since the beginning of this study by The Senior Citizens League in 2010,” Johnson noted.

Luckily, CNN reports that seniors might soon get a break when it comes to Medicare premiums. Earlier this year, older consumers were forced to deal with a 14.5% spike in Part B premiums, a move that raised monthly payments for those in the lowest income bracket from $148.10 to $170.10 per month. That increase was largely due to a big jump in the price for Aduhelm, a treatment for Alzheimer's disease. 

However, after some pushback from the U.S. Food and Drug Administration (FDA), the drug's manufacturer cut prices, and the Centers for Medicare and Medicaid Services limited coverage for the medication. The good news for seniors is that this adjustment will likely lower 2023 premiums. A final decision on that is expected to come this fall. 

At the present rate of inflation, the Social Security cost of living adjustment (COLA) for 2023 could be as high as 8.6%. For seniors, that’s the good news.

But the Senior Citizens League, which issued that estimate, also says inflation has caused Social Security benefits to lose 40% of their buying power since the year 2000. During most of those years, there were minimal annual increases in benefits.

The league’s new study found that Social Security recipients could buy 30% less than they did in March 2021. Today, the study shows that seniors’ purchasing power is down about 40%

To arrive at that result, the study compared the growth in the Social Security COLA increases with the rise in the price of 37 goods and services that are typically used by retirees. While prices rose in almost every spending category, benefits were impacted the most by sharp increases in energy costs for home heating, gasoline, and higher food prices. This year, there was a 14.5% increase in Medicare Part B premiums.

Inflation hits retirees particularly hard

Peter Anastasian, senior vice president and a financial adviser at Wealth Enhancement Group, says inflation is particularly damaging to seniors who live on a fixed income. Not only do things cost more, but the current bear market has also reduced the value of their investments.

Even though Social Security benefits rose by 5.9% this year, Anastasian says that’s not enough to help seniors cope with the current inflation rate of more than 8%.

“The increase in Medicare premiums increased substantially as well, offsetting a large part of the Social Security increase,” Anastasian told ConsumerAffairs. The cost of basic necessities, such as rent, phone, gas, and food have increased well over 10% year-over-year, and so seniors have been feeling the impact of inflation more so this year than ever before.”

Expenses rise 130% since 2000

The Senior Citizen League’s study of reduced purchasing power found that Social Security COLAs have increased benefits by a total of 64% since 2000. However, typical senior expenses through March 2022, grew by more than double that rate – 130%.

There is no guarantee that next year's COLA will rise by 8.6%. The benefit increase is determined by averaging the Consumer Price Index (CPI) for July through September.

Some economists believe inflation could taper off over the summer, which would be good news for the U.S. economy as a whole. But it would also mean the Social Security COLA would likely be less than 8.6%.