Will seniors line up next year for their biggest Social Security increase in decades? That probably looks like.
In June, the consumer price index (CPI) rose 9.1% year-on-year, the index’s largest rise in about 40 years. Now adjustments to the cost of living of Social Security, or COLAs, are actually based on third-quarter inflation data from the CPI-W, the consumer price index for urban wage earners and white-collar workers. And that’s not yet data that we’re already familiar with (with the fact that it’s July and all).
Still, it’s reasonable to assume that Social Security benefits will increase significantly in 2023. And some estimates call for a 10.5% increase, which would be much higher than the 5.9% COLA seniors received in early 2022.
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But while some Social Security recipients are eagerly anticipating a big COLA next year, the reality is that a massive raise really isn’t a good thing. The reason? It is unlikely to actually help seniors get ahead financially.
Why a big COLA is no reason to celebrate
When Social Security benefits soar, it’s only because high inflation allows it. But that means, at best, a large COLA will allow seniors to maintain their purchasing power in the face of inflation — and not get more of it.
And remember, that’s the best case scenario. Earlier this year, many Social Security seniors thought they would be sitting pretty after a 5.9% increase. But as we can see, inflation has been well above 5.9% in recent months. That means seniors have actually lost purchasing power this year.
But that’s not the only reason seniors shouldn’t get too excited about a big Social Security COLA. The other reason is that if Medicare costs go up a lot next year, they’ll languish even more on that COLA.
In 2022, the standard Medicare Part B premium is $170.10. In 2021 it was $148.50. That $21.60 monthly jump took away some of this year’s COLA, and there’s no reason to believe the same won’t happen next year.
As such, while seniors can expect a generous COLA for 2023, they should not expect their standard of living to improve as a result. Those looking for more financial breathing space will likely have to take matters into their own hands by cutting costs or looking at part-time work.
The good news about the latter is that the gig economy has expanded and become more flexible. And so working part-time can mean looking for a remote job or a job with a very easy-to-manage schedule.
Take the next COLA announcement with a grain of reality
Social Security COLAs are typically announced in the first half of October. Until then, seniors can only guess at the raise coming their way. But they also need to be realistic about what that raise could actually do for them.
It’s definitely a good thing that Social Security benefits are designed to keep up with inflation. But it’s also important to recognize that they often don’t.
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