Social Security benefits will get a big cost-of-living adjustment this year 2023, and that raise comes with a special bonus.
A lot of retired workers have found themselves in a very difficult situation in terms of financial problems. The stock market has sold off smartly in response to the recession fears, wiping off almost $3 trillion from individual retirement accounts (IRAs) through the first three quarters of the last year 2022. Meanwhile, the inflation issue has reached its highest level in four decades last year, driving a double-digit increase in the prices of people’s groceries, gasoline, and monthly utilities.
The 5.9% cost-of-living adjustment (COLA) applied to Social Security benefits in 2022 and they failed to keep pace with increasing prices, which means the benefits lost buying power. Yet retired workers had good reason to believe that this year the situation will improve. Social Security benefits will get an 8.7% raise in 2023 which is the largest COLA since 1982 and that raise comes with a very important bonus.
The Problem With Social Security’s 5.9% COLA In 2022
Inflation erodes over time the purchasing power of money. Because of that reason, $100 will buy only fewer goods today than it did five years ago, and far fewer goods than it did a few decades ago. The slow loss of purchasing power is a problem for retired workers on Social Security, and COLAs are their solution to this problem.
Social Security checks get an annual COLA to protect the benefits from inflation, and these COLAs, this calculation based on the changes in the third quarter of each year of the Index of Consumer Price for Urban Wage Earners and Clerical Workers or (CPI-W). For example, the CPI-W increased by 5.9% in the third quarter of the year 2021, so a 5.9% COLA was applied to benefits in 2022.
Regardless, as noted earlier, the 2022 COLA failed to protect the buying power of the benefits, and everything went wrong. Inflation (as measured by the CPI-W) has risen far faster than 5.9% over the past year.
READ ALSO: $1,000 Relief Payment: Deadline Of Application Comes Near