Good news – sort of.
If you’re retired or about to retire, next year’s Social Security exams are likely to experience one of the biggest bumps on record due to rising consumer prices.
The average beneficiary could be getting up to $180 more per month starting next January, based on recent inflation. And they can almost certainly expect at least an extra $120.
These are the numbers based on the Social Security Administration’s own numbers. The numbers were compiled by the Center for a Responsible Federal Budget, a well-known think tank in Washington, DC.
The higher payments will be welcome news for retirees whose household finances have been under severe strain so far this year due to skyrocketing inflation and financial turmoil.
The consumer price index rose 8.6% for the year through May, well ahead of the 5.9% annual inflation adjustment handed out to Social Security beneficiaries in January. Meanwhile, retirees with savings in stocks and bonds have seen their portfolios plummet with financial markets.
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And those who live on a fixed income, for example through a lifelong pension, are hit particularly hard by inflation. Very few annuities adjust payouts for inflation, so checks have simply lost 9% of their purchasing power in one year. Even those pensions that adjust for inflation typically only increase payments by at most 2% or 3% per year.
Only in October will the social security administration officially announce the annual cost-of-living adjustments for 2023. But the formula she will use is public and we already have some numbers.
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First introduced during the inflationary period of the 1970s, the annual COLA is calculated by comparing consumer prices each summer with prices from the previous summer. The Social Security Administration will look at the average CPI numbers for July, August and September and compare them to the average for the same three months last year.
CRFB notes that based on these calculations, we are already on track for a 2023 cost-of-living adjustment of at least 7.9%. That’s pretty much a guaranteed minimum. The reason? The May CPI is already 7.9% above last summer’s average. Even if there were no further price increases at all in the economy for the rest of the summer and the rest of the year, we expect this increase.
With an average Social Security benefit of $1,657 per month, this increase would translate to an additional $121 per month.
But absolutely no one believes that consumer prices stopped rising on May 31 and will remain flat for the rest of the year. The CRFB estimates that if inflation instead continues to rise at its recent rate, the next COLA is likely to be a staggering 10.8%. For someone currently receiving an average monthly check, that would be worth another $178 per month.
It’s good news for retirees, but only up to a point. The extra money isn’t really a windfall, just trying to offset the rising cost of household spending.
Inflation actually hurts Social Security recipients. These inflation adjustments only come retrospectively, based on the inflation of the previous year, so you always lose a little ground. Oh, and rising inflation means more retirees are taxed (actually double taxed) on their benefits. When Congress introduced Social Security taxation in the 1980s, it set income thresholds and cleverly avoided indexing them to inflation.
On the positive side, recent cost-of-living adjustments stand to benefit retirees whose expenses are rising at a slower pace than official inflation figures. According to the US Department of Labor, a separate cost-of-living index they calculate for older people rose 8.0% in the 12 months to May.
That’s still pretty bad. But it’s not quite as bad as CPI for everyone else.
These days we take any good news we can find when we find it.