This Chief Actuary’s Must-Read Quote on Social Security | Smart Switch: Personal Finance

(Sam Swenson, CFA, CPA)

In a recent webinar, Social Security Administration (SSA) Chief Actuary Stephen C. Goss noted, “With the trends we’re seeing this year, we’re likely to have a COLA closer to 8% than 3%.” .8% next year.”

This came after a discussion of “increasing inflation,” which, at the time of writing, was recorded at 8.6% for the 12 months ending May 2022. The rapid increase in prices has rocked the US economy and plunged consumer confidence to a point lower than during the great recession from 2008-2009.

Let’s explore how skyrocketing inflation could affect your monthly Social Security check in 2023.

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The story of inflation in 2022

The new year has already brought big changes to Social Security checks, with benefits increasing 5.9% to account for cost-of-living adjustments (COLAs). Inflation data arriving in the summer and fall of 2021 called for an increase in payments to allow retired seniors to maintain their purchasing power. At the time, a 5.9% rise in profits was the highest since 1982.

We have come to learn during the first half of the year that this period of inflation is anything but transitory. There is a significant probability that higher prices are here to stay for some time; companies have been able to raise prices in part because personal consumption figures remain high. On the supply side, the conflict in Ukraine, coupled with ongoing production and shipping issues stemming from the pandemic, has limited supply in several industries, allowing prices to rise.

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Looking to 2023

Given that price growth on basic consumer needs has increased, the SSA is leaning toward a COLA increase in 2023 of between 8% and 9%. This again would represent the largest COLA since the early 1980s, and would go a long way toward helping retirees combat rapidly rising prices for the most basic items like food, gas, and health care.

Because the S&P 500 is, as of this writing, entering a bear market, a COLA of 8% or more will be critical in preventing fixed-income retirees from experiencing a significant decline in living standards. Retirees with stock portfolios may be hesitant to sell when values ​​decline, so any increase in income, if only to match rising price levels, is certainly welcome.

From a financial planning standpoint, support for retirees depends on a combination of Social Security benefits, personal savings, and pension income. With personal savings likely to be affected by falling markets and stable pensions slowly becoming a thing of the past, Social Security benefits must shoulder more of the burden to keep retirees safe from economic despair.

It is clear that a COLA of at least 8% will be needed to meet that target.

Social Security is important to most

If you’re in the fortunate position of not having to rely on Social Security to help cover retirement costs, you’re in the lucky minority. About 65 million Americans will receive Social Security checks in any given year, so it’s important to realize how much COLA increases impact the nation as a whole. Given the continued price increases we have seen, we may need to adjust for several years to similar adjustments to ensure the health and well-being of our senior population.

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