Will seniors be in line for their biggest Social Security increase in decades next year? That seems likely.
In June, the Consumer Price Index (CPI) rose 9.1% annually, marking the index’s largest rise in roughly 40 years. Now, Social Security’s cost of living adjustments, or COLAs, are actually based on third-quarter inflation data from the CPI-W, which is the consumer price index for urban wage earners and white-collar workers. And that’s not data we know yet (since it’s July and all).
But still, it’s fair to assume that Social Security benefits will increase substantially in 2023. And some estimates call for a 10.5% boostwhich would far exceed the 5.9% COLA seniors received in early 2022.
But while some Social Security recipients may be eagerly anticipating a big COLA next year, the reality is that a giant increase is really not a good thing. The reason? It is unlikely to actually help seniors get ahead financially.
Why a Big COLA Isn’t a Cause for Celebration
When Social Security benefits go up a lot, it’s only because high levels of inflation allow it. But that means that, at best, a large COLA will allow seniors to maintain their purchasing power in light of inflation, not earn more.
And remember, that’s the best case scenario. Earlier this year, many seniors on Social Security thought they’d do just fine after a 5.9% raise. But as we can see, the inflation rate has remained well above 5.9% for the past few months. That means seniors have lost purchasing power this year.
But that’s not the only reason seniors shouldn’t get too excited about a big COLA from Social Security. The other reason is that if Medicare costs go up a lot next year, they’ll eat up that COLA even more.
In 2022, the standard Medicare Part B premium is $170.10. In 2021, it was $148.50. That $21.60 monthly jump took a chunk out of this year’s COLA, and there’s no reason to assume the same won’t happen next year.
As such, while seniors can expect a generous COLA by 2023, they should not expect their standard of living to improve as a result. Those looking for more breathing room financially will likely need to take matters into their own hands by cutting back on expenses or looking for a part-time job.
The good news regarding the latter is that the gig economy has expanded and become increasingly flexible. And so taking a part-time job could mean finding a remote job or one with a very manageable schedule.
Take the next COLA ad with a little reality
Social Security COLAs are generally announced during the first half of October. Until then, seniors can only guess at the surge headed their way. But they also need to be realistic about what that increase might do for them.
It’s definitely a good thing that Social Security benefits are designed to keep pace with inflation. But it’s also important to recognize that they often don’t.
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