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A Few Years Had Such Sizable Gains
The inflation adjustment for Social Security benefits was very high at 5.9% in 2022. The cost-of-living adjustment began with benefits payable to more than 64 million Social Security beneficiaries in January 2022.
But you’d have to go back to 1979, 1980 and 1981 for any inflation adjustment that would be 9% or higher. The highest COLA was 14.3% in 1980.
Johnson said the deepest impact of inflation has been felt by those older adults who aren’t bringing home any paycheck, even a small one as well as seniors who don’t have a pension or any savings.
“Every COLA is meaningful,” Johnson told the Free Press, “because Social Security is one of the only forms of retirement income that is adjusted for inflation.”
If you need about 10% more money now, for example, to buy the exact same groceries and other goods you bought a year ago, you’re going to drain whatever savings you have much faster.
While you can trim some spending by turning to generic brands, eating less meat or going out for lunch less often, everything we buy isn’t discretionary and cannot be scratched off a shopping list.
Inflation was high last year and it soared even more so far in 2022. July did show improvement when the month-to-month change was flat, reflecting in part a 7.7% decline in gasoline prices in the month.
Retirees couldn’t keep up with inflation this year, though, as many pensions aren’t adjusted for inflation and many retirees do not have pensions at all.
Every extra dollar counts in retirement.
How Social Security Calculates The Cola
Social Security benefits have been adjusted for inflation annually since 1975. Specifically, they are adjusted using the Consumer Price Index for Urban Wage Earners and Clerical Workers , an official measure of the monthly price change in a market basket of goods and services, including food, energy and medical care.
The CPI-W is a subset of the main Consumer Price Index, which measures a broader range of retail prices . To determine the COLA, the SSA compares the average CPI-W for July, August and September to the figure for that same period the year before.
For example, the CPI-W in July 2021 was up 6 percent from July 2020. The year-on-year increases in August and September 2021 were 5.8 percent and 5.9 percent, respectively. Averaging those three figures produced the 5.9 percent COLA that went into effect in January 2022.
Prior to that, the COLAs for the previous 10 years had averaged 1.7 percent, ranging from zero in 2015 to 3.6 percent in 2011. If there is no inflation, theres no COLA that happened in 2009, 2010 and 2015. The biggest adjustment was 14.3 percent in 1980.
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Would A Tax Increase Pay For All This
The bill would increase the Social Security payroll tax on higher-income workers. Currently, workers pay the Social Security tax on their first $147,000 of earnings. To be sure, most Americans earn less than that. But higher-income workers who make more than $147,000 annually don’t pay the Social Security tax on any earnings above that level.
Under the bill, the payroll tax would kick in again for people earning above $250,000. Only the top 7% of earners would see their taxes go up as a result, according to DeFazio.
However, there’s one quirk about this arrangement: It would create a “donut hole” in which earnings between $147,000 and $250,000 would not be subject to the payroll tax, Shedden noted.
The bill would also extend the Social Security payroll tax to investment and business income, an issue that could face resistance. “I’m leery about that,” she said. “Social Security was set up to be based on contributions on earned income, and this mixes up the basket of earned and unearned income.”
Recipients Are Gearing Up For What Could Be Their Second
Tens of millions of people rely on Social Security for vital retirement income, and many live largely on the fixed income that Social Security provides. One of the most important aspects of Social Security is that its monthly benefits are adjusted each year for inflation through annual cost of living adjustments, or COLAs.
When inflation levels are tame, as they’ve been for much of the past decade, Social Security COLAs tend to be small. However, price levels have moved sharply higher recently, and that’s putting Social Security in a position in which the COLA that will take effect at the beginning of 2022 could be among the top increases it’s given since 1990.
Image source: Getty Images.
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How Social Security Cola Increases Are Calculated
While Social Security benefits are tied to inflation, they are actually based on a slightly different metric than the headline inflation rate of 8.5%, which the Labor Department calls the Consumer Price Index for All Urban Consumers .
Instead, Social Security benefits are calculated using the CPI for Urban Wage Earners and Clerical Workers . The Labor Department says this estimate provides a better picture of blue-collar consumers, aka lower- and middle-income earners.
Inflation affects these groups of people differently, and as a result, the CPI-W inflation rate is currently higher. In March, the Labor Department says consumer prices rose for that cohort of people by 9.4%. This is the rate Johnson used to predict the new COLA.
The anticipated 8.9% boost would help more than just retirees. Social Security benefits also include Social Security Disability Insurance and Supplemental Security Income , two vital programs that aid people with disabilities.
Altogether, more than 70 million Americans would stand to gain from increased Social Security payments.
Social Security Payments Averaging $1672 Are Going Out Today For These People
Anyone who has a birthday landing between the 11th of any given month and the 20th of any given month can expect their payments to hit their bank accounts today. Benefits are always sent on Wednesdays unless there is a holiday. Which Wednesday you see your payment depends on when your birthday is.
Anyone with a birthday between the first and tenth of a month will see their Social Security payment on the second Wednesday of every month. Those with birthdays landing between the 11th and 20th get their checks sent on the third Wednesday of every month. Finally, anyone with a birthday between the 21st and the end of a month will see their checks on the fourth Wednesday of each month.
Over 65 million Americans receive benefits, according to The Sun. The payments this year were boosted to $1,672, up from last year following the 2022 COLA increase of 5.9%. Couples receiving benefits will see their payments together. An average payment for a couple in 2022 is now $2,753. Thats up from the $2,599 average payments couples saw in 2021.
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Costs Of The Solution
Two issues that are likely to arise in any discussion of fixing this problem are its cost to the Social Security trust fund and its cost to the federal budget. With regard to the cost to the Social Security trust fund, there are three ways to look at the issue.
One way is to view the cost relative to costs in a world in which no pandemic had occurred. For example, the cost could be measured using the economic assumptions in the most recent Social Security trustees report , which were formulated before the pandemic began. From this perspective, the cost would be zero because the legislative change would restore the world of Social Security benefits to what it would have looked like had there been no pandemic.
A second way of looking at the issue is to view the cost of the change relative to costs in a world that reflected economic assumptions indicative of the economic recession caused by the pandemic. From this viewpoint, there would be a cost associated with fixing the problem. For example, the chief actuary of the SSA estimates that if the AWI in 2020 were to fall 5.9 percent below its 2019 level, the AWI adjustments proposed by Chairman Larson would cost $90 billion in present-value dollars for the 75-year period from 2020 through 2094about 0.02 percent of taxable payroll over that period. . The cost over the 10-year period from 2020 to 2029 would be about $21 billion in nominal dollars.
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The latest consumer price index for June is increasing at its fastest pace since 1981. Inflation has risen 9.1% from one year ago and was higher than the 8.8% increase estimated by Dow Jones.
One consequence of these inflationary pressures is a potential increase in the cost of living adjustment for Social Security beneficiaries in 2023. The Senior Citizens League, a non-partisan group, now estimates the cost of living adjustment to be 10.5% next year. In dollar terms, this would come to a $175.10 increase to the average monthly retirement benefit of $1,668.
Back in May, which seems like a long time ago at this point, when inflation data came in higher than expected, The Senior Citizens League had estimated COLA to rise 8.6% for next year.
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Seniors Are Already Losing Buyer Power
At first, 2022’s 5.9% COLA seemed like a great thing for seniors. But so far, beneficiaries are already losing buying power because the rate of inflation is outpacing their COLA, which they’re limited to for the entire year.
If high levels of inflation persist, seniors could end up seeing a COLA in the 7% range in 2023. But that may not do them much good. Chances are, if that high a COLA comes through, it will simply be wiped out by higher living costs.
Furthermore, Medicare costs have been rising steadily, and that’s done a good job of eroding COLAs in recent years. If Medicare Part B premiums increase a lot in 2023, seniors could end up in a serious financial crunch even if their COLA is extremely generous.
Your Social Security Benefits Could Increase This Much In 2023
Next year’s monthly Social Security checks could get their biggest boost in more than four decades.
Dan Avery
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Dan is a writer on CNET’s How-To team. His byline has appeared in Newsweek, NBC News, The New York Times, Architectural Digest, The Daily Mail and elsewhere. He is a crossword junkie and is interested in the intersection of tech and marginalized communities.
Beginning in 2023, Social Security benefits could see the biggest increase in four decades, according to analysts.
The cost-of-living adjustment for Social Security was already a substantial 5.9% this year, or about $93 a month. By June, though, the US Bureau of Labor Statistics reported that the Consumer Price Index, the year-over-year change in prices Americans pay for goods and services, was at 9.1%.
It dipped to 8.5% in July and, according to the latest CPI figures, was only 8.3% for August. That’s good news for the economy, but still marks 18 straight months that inflation far outpaced the 2% target set by the Federal Reserve.
The adjustment for 2023, which will be announced sometime in October, “will be one of the highest COLAs ever paid in the history of the program,” Mary Johnson, a policy analyst at the nonprofit Senior Citizens League, told the Detroit Free Press.
For more on Social Security, learn when checks go out, how to access your benefits online and how benefits are calculated.
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The Full Retirement Age Could Be Raised
In 1983, Congress mandated that the full retirement age would gradually rise to 67 from 65, a change that is still being phased in today.
Just moving the age to 67 from 66 resulted in a 5% benefit cut that took 40 years to take full effect, said Joe Elsasser, founder and president at Covisum, a Social Security claiming software company.
Congress could consider raising the retirement age again. Many argue that could make sense, as people often are waiting longer to retire.
Yet, implementing such a change could be tricky, particularly if that resulted in a bigger reduction for people who claim retirement benefits when they are first eligible at age 62 and who may no longer be able to work.
While the extent of any future changes to the program is unknown, the key for individuals and families is to stress test their retirement plans, Elsasser said.
“You have to have a good idea whether you are reasonably on track, even with the full Social Security benefit,” Elsasser said. “And then the second step would be to say: How would it impact me specifically if I experience a benefit cut?”
Will Social Security Benefits Go Up Even More
In February, the Consumer Price Index for all Urban Consumers rose 7.9% on an annual basis, marking its steepest annual gain in over 40 years. If this trend persists, then seniors on Social Security could see their benefits rise even more next year.
Image source: Getty Images.
To be clear, though, it’s too soon to predict what 2023’s cost-of-living adjustment will look like. The reason? COLAs are based on CPI data from the third quarter of the year . And while there’s a strong chance rampant inflation will persist throughout 2022, inflation levels could also somehow subside by summertime.
But still, either way, there’s a strong possibility that Social Security benefits will get a generous raise in the new year. Whether that’s something to celebrate, though, is a different story.
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Social Security: Beneficiaries Could Get A $1900 Boost Next Year
Is COLA going to increase significantly in 2023?
The annual cost-of-living adjustment for seniors and other Social Security recipients may increase significantly starting next year. According to experts’ predictions, the typical recipient of Social Security may receive an additional $1,900 in 2023 to keep up with inflation.
As their raise for 2022, 5.9%, lagged the highest inflation in 40 years, many seniors have struggled this year.
As gas prices fell in July, consumer prices decreased, but inflation remained extremely hot, rising 8.5% from a year ago.
The Social Security Administration bases its annual COLA adjustment on data on inflation from July, August, and September, and the organization makes its official increase announcement in the middle of October.
Seniors may experience an average monthly increase of 9.6% now that data are available for one of those three months, according to the Senior Citizens League.
Seniors might finally receive a break in 2023 and close the benefits gap that many are currently experiencing if inflation continues to decline.
According to the nonpartisan organization, a 9.6% increase would result in a monthly gain of about $159 and an annual gain of $1,900 based on the average monthly benefit of $1,656 in 2022.
The Social Security Administration anticipates announcing the COLA on October 13 after the publication of the September inflation figures.
Keep The Champagne On Ice
But just because Social Security benefits are on pace for a historic boost, it doesn’t mean the program’s beneficiaries should break out the champagne. Even with a forecast 8.7% cost-of-living adjustment for 2023, two headwinds could very well lead to disappointment.
First of all, inflation threatens to eat up a significant portion of next year’s benefit increase. The only reason COLA is expected to reach a 41-year high in percentage terms is because the cost of shelter, food, energy, and a number of other products and services, have skyrocketed over the past year. Chances are good that beneficiaries will paying out most, or possibly all, of their increase to cover the rising cost of goods and services.
The other issue has been persistent for over two decades: A loss of purchasing power. According to a TSCL report released in May, the purchasing power of Social Security income for retirees has plunged by 40% since 2000.
The real kick in the pants is that lawmakers on Capitol Hill are aware the CPI-W isn’t doing its job, but they can’t agree on a common-ground solution to fix the problem. In other words, no matter how large COLA is in 2023 or the years thereafter, it’s likely we’ll see the purchasing power of Social Security income continue to decline.
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Todays Inflation Data Provides A Strong Clue As To What Recipients Might Expect From The Official Announcement In October
Social Security recipients are on track to receive the highest cost-of-living increase in more than four decades next year.
Social Security checks get an inflation adjustment every year based on the Consumer Price Index for Urban Wage Earners and Clerical Workers. In determining the cost of living adjustment, or COLA, the Social Security Administration compares the average figures for July, August and September to the indexs average level over the same period a year earlier.
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