For all Social Security recipients, some significant relief for the recipient’s inflation-hit pocketbooks is on its way to people. The 8.7% cost-of-living adjustment (COLA) is about to go into effect. Since 1981, there hasn’t been a COLA that high.
The Social Security Administration (SSA) implemented 1975 automatic annual COLAs to try to help solve a major issue for decades. inflation is corrupting the Social Security benefits. It took Congress to act on increasing the amount of money that beneficiaries get.
The automatic annual COLAs helped, but unfortunately, that didn’t solve the big issue. The reason why it didn’t work is that the increases were not enough and didn’t arrive soon enough.
An inflation metric called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) was used to calculate Social Security. The major drawback to the CPI-W is that instead of focusing on retirees it focused on employed workers.
This is concerning because senior citizens spend more on healthcare than how much younger individuals do and healthcare costs are rising fast than any other categories tracked by the CPI-W. As a result of this, annual COLAs aren’t enough to fully offset the impact of inflation on retirees.
The complication of the situation because of the way that COLAs are calculated is making it difficult. In the third quarter, the average CPI-W of the current year is compared against the average CPI-W in the same quarter of last year. COLA will be equal to the percentage increase.
There are two downsides to this approach. First, it is possible that inflation could rise much higher in the first two quarters of a year than in the third quarter. The second is the COLA won’t go into effect until December and the recipients won’t see the increase until January. This means that seniors can incur significantly higher costs for a very long time before they can get an increase to offset these costs.
An example last year, is a great example of the not enough/not soon enough problem with Social Security COLAs. Retirees received a benefit increase of 5.9% for 2022. But the inflation rate, as calculated by the CPI-W, was 8.2% higher in January and with the monthly increase rising to 9.8% by June.
The retirees’ increased Social Security benefits this year 2023 some of the higher expenses they incurred in 2022 will help offset. While inflation does seem to be moderating somehow, it could just remain high over the year. Unsurprisingly, a recent Motley Fool survey found that around 55% of retirees don’t think the 8.7% COLA will be enough to help.
There’s a Potential That More Bad News For Retirees With The Latest Social Security Raise Is Coming
Receiving a COLA is better than not receiving any of it. Seniors can also expect forward to lower Medicare Part B premiums. Maybe this year 2023 won’t be as happy of a new year as many would like, but it should be happier than it could have been.
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