Social Security Benefits to Increase by 8.7% Next Year

According to several government indexes, inflation hits older Americans harder than the rest of the population, with medical costs comprising a significant portion of the burden. The announcement of an increase in the cost-of-living allowance (COLA) Social Security benefits comes just weeks before the midterm elections when Republicans and Democrats are facing off about high prices and how to shore up the program financially for the future. 

William Arnone, chief executive of the National Academy of Social Insurance, an advocacy organization for Social Security, said the increase in benefits is “no cause for celebration” because if prices continue to rise, it won’t help all recipients overcome inflation. 

“There’s already indications that health care inflation is going to be through the roof next year,” said Arnone. 

Around 70 million people, including children, the disabled, and retirees, receive benefits from Social Security. The increase will be the most significant increase in benefits that baby boomers born between 1946 and 1964 have seen. The last time the COLA was higher was at 11.2% in 1981. 

Social Security is paid for by payroll taxes collected from employers and workers. The maximum earnings subject to Social Security payroll taxes increased from $147,000 in 2022 to $160,200 in 2023. 

Financing setup for the social safety net dated back to the 1930s and was the brainchild of President Franklin D. Roosevelt. He believed a payroll tax would foster a sense of ownership among average Americans, shielding the program from political interference. 

Increasing next year’s highest payout could put additional pressure on a system facing a critical shortfall in coming years without an accompanying increase in contributions to Social Security. The annual Medicare and Social Security trustees report was released in June and says the program’s trust fund will cease to be able to pay full benefits starting in 2035. 

If the fund is further depleted, the government will only be able to pay around 80% of scheduled benefits. Likewise, Medicare can pay 90% of the expected benefits.

Several Social Security reforms proposed; none implemented

According to a January Pew Research Center poll, 57% of adults in the U.S. say that “taking steps to make the Social Security system financially sound” was a key priority for Congress and the president to address this year. Securing Social Security received bipartisan support, with 58% of Republicans and 56% of Democrats calling it a high priority. 

While some solutions to reform Social Security have already been proposed, none have moved forward in a deeply divided Congress. 

House Speaker Nancy Pelosi said the recent COLA announcement reinforces that “extreme MAGA Republicans are openly plotting new schemes to slash seniors’ benefits and raise their costs — including by threatening to cause an economic catastrophe by holding the debt limit hostage for their toxic agenda.”

Earlier in the year, Republican Senator Rick Scott of Florida issued a plan requiring Congress to draft a proposal to adequately fund Medicare and Social Security or work on phasing them out. 

However, Senate Minority Leader Mitch McConnell, a Republican from Kentucky, publically criticized the plan, and the president has used Scott’s proposal as a political weapon against Republicans leading up to the midterms. 

“If Republicans in Congress have their way, seniors will pay more for prescription drugs, and their Social Security benefits will never be secure,” said Karine Jean-Pierre, White House press secretary. 

The Social Security Administration says starting in January, the estimated average benefit for retired workers will be $1,827.