Since 1981, Social Security beneficiaries are seeing the largest increase in their monthly payments.
According to a new projection of the 2023 cost-of-living adjustment by The Senior Citizens League (TSCL), a nonprofit advocacy organization, Social Security monthly payments will increase by 8.9% next year.
Current Social Security recipients will have to make do with a 5.9% COLA in 2022. Prior to then, the rise had been a meager 1.6 percent. An increase of 8.9% would be the largest since 1981 and the fourth-largest since 1975 when Congress implemented automatic COLAs.
The probable rise in the Social Security benefits will directly react to sky-high inflation, which is at heights not seen in more than four decades. According to the Labor Department, inflation rose to 8.5 percent in March, the highest amount since December 1981. The rise was attributed in significant part to rising gas, grocery, and automobile prices.
TSCL had already predicted a 7.6% cost-of-living raise for 2023 before Tuesday’s inflation report. It would be a great relief for several Americans who depend on Social Security benefits if the payouts were increased even further.
In October, the Social Security Administration will issue the COLA, which will be based on the latest inflation figures, and, therefore will start taking effect in January 2023.
Calculations For The Social Security Increase
While Social Security benefits are linked to inflation, these are calculated using a slightly distinct formula than the 8.5 percent “headline inflation rate,” known as the Consumer Price Index for All Urban Consumers by the Labor Department (CPI-U).
Instead, the CPI for Urban Wage Earners and Clerical Workers is used to calculate Social Security benefits (CPI-W). According to the Labor Department, this estimate clearly understands “blue-collar” customers or lower- and middle-income individuals.
As a result of the differences in how inflation impacts various groups of individuals, the CPI-W inflation rate is actually higher. According to the Labor Department, consumer prices for that group jumped 9.4% in March. Johnson utilized this rate to forecast the next COLA.
The expected 8.9% increase would benefit beyond just pensioners. Social Security benefits even include Social Security Disability Insurance as well as Supplemental Security Income, two important disability-assistance programs.
Increased Social Security payouts would benefit over 70 million Americans in total.
Reasons For Social Security Benefits To Increase
However significant, the anticipated COLA hike may be a bit too late.
“People are attempting to make ends meet on a 5.9% COLA during a time when inflation is reaching 9.4%,” Johnson says.
Inflation is already wreaking havoc on people’s finances, and the enhanced Social Security benefits won’t arrive until January 2023.
Inflation has an impact on savings because retirees have to draw out more money, Johnson explains. However, it can also harm their fixed income accounts, such as securities and certificates of deposit (CDs).
Even so, that’s a bit of wishful thinking. According to Johnson, 45 percent of Social Security recipients have no retirement funds, according to a new TSCL poll.
Of everyone who possesses savings, 21% indicated they had completely exhausted a retirement or savings account in the previous year.
Johnson says that during a difficult economic era, retirees can take a beating and may never fully recover.