Ben, let’s start with inflation. What should people know about the effect inflation has on Social Security benefits?

To help offset the impact of inflation, Social Security beneficiaries automatically receive an annual cost-of-living adjustment (COLA) based on the Consumer Price Index.

How much was the COLA for 2022, and when can we expect the 2023 adjustment to be announced?

The COLA for 2022 was 5.9%. The 2023 adjustment should be announced in October, and while we can’t predict what that will be, given the higher rate of inflation in 2022, we anticipate there will be a COLA increase.

Social Security: An updated perspective

Q: In addition to dramatic increases in everyday expenses, people are also concerned about rising health care costs. Where does Social Security factor into retirement strategies to pay for health care?

A recent HealthView Services study revealed that a healthy 65-year-old couple retiring today with Medicare will need 71% of their lifetime Social Security benefits to cover their medical expenses in retirement—and that percentage could be even higher if inflation remains at current levels. In addition, for those retiring 20 years from now, health expenditures will exceed projected Social Security income by 56%. Retirees are often surprised by how much they need for health care expenses, which can quickly erode their stream of income. This is another proof point for why planning for health care expenses, for example, with a Health Savings Account, is so important.

While most Americans are counting on Social Security as a source of income in retirement, many don’t fully understand how this benefit works, decisions they’ll need to make about when to claim their benefits and factors that might affect the amount they receive.

To help shed some light on the topic, we connected with Ben Storey, director of Retirement Research & Insights at Bank of America, to explore how current issues—like staggering inflation and rising health care costs—might affect this important benefit.

JBS: A recent HealthView Services study¹ revealed that a healthy 65-year-old couple retiring today with Medicare will need 71% of their lifetime Social Security benefits to cover their medical expenses in retirement—and that percentage could be even higher if inflation remains at current levels. In addition, for those retiring 20 years from now, health expenditures will exceed projected Social Security income by 56%. Retirees are often surprised by how much they need for health care expenses, which can quickly erode their stream of income. This is another proof point for why planning for health care expenses, for example, with a Health Savings Account, is so important.

JBS: If an employee delays collecting retirement benefits until after full retirement age (FRA), they will earn delayed retirement credits, which will increase the benefit by 8% per year (if born in 1943 or later), up to age 70, and adjusted for inflation, if applicable, each year for the remainder of their life. In exchange for delaying benefits, they will receive higher monthly payments throughout their lifetime. If they are married and are the higher wage earner, their spouse will also be eligible for higher survivor protection if the higher wage earner passes away first. However, it is important to keep in mind that if an employee delays retirement benefits, their spouse (or other beneficiaries such as a minor child) will not be able to collect spousal benefits until the primary benefit holder files and begins collecting.

JBS: For employees who are still working but haven’t reached full retirement age, depending on the level of earned income, employees may be subject to an earnings limit, which would result in a reduction of benefits. Those who are working past full retirement age would not be subject to an earnings limit. Note that in both scenarios, since they are continuing to work, they will continue to be subject to Social Security taxes. However, Social Security will review employees’ earnings records every year to determine if additional earnings will increase monthly retirement benefits. If the benefit increases, Social Security will send a letter with your new benefit amount. This would also have a positive impact on any other benefits that are based on an employee’s earnings record, such as a benefit for a spouse or child.

¹ HealthView Services, 2022 Retirement Healthcare Costs Data Report Brief: The Long-Term Impact of Short-Term Inflation, March 2022.

This discussion of Social Security is general in nature, is intended for informational purposes only, and is not all-encompassing. The circumstances surrounding each situation differ, and additional eligibility requirements or restrictions may apply.

Ben Storey

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Social Security: An updated perspective

Bank of America: Ben, let’s start with inflation. What should people know about the effect inflation has on Social Security benefits?

Bank of America: How much was the COLA for 2022, and when can we expect the 2023 adjustment to be announced?

Bank of America: In addition to dramatic increases in everyday expenses, people are also concerned about rising health care costs. Where does Social Security factor into retirement strategies to pay for health care?

Bank of America: How does delaying Social Security affect retirement, spousal and survivor benefits?

Bank of America: Some employees have asked if they can collect Social Security benefits while still working. What should they know?

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