For those on a fixed income, significant Social Security adjustments might have a major impact on their pocketbooks. And retirees are expected to see one next year. In fact, seniors will discover that their benefits will increase more than it has in 40 years.
Here’s why Social Security payments are going up so much.
The big change Social Security recipients will see next year
Next year, Social Security benefits will probably rise by at least 8.6% as a result of the cost-of-living adjustment (COLA). So, for example, a person who received the average benefit of $1,661 last year could see his or her benefits go up as much as $142.84.
Last year’s 5.9 percent COLA, while not much lower than the 8.6 percent benefits boost that future retirees may expect next year, is a significant departure from the raise most current benefit recipients have seen for much of their retirement years. In fact, since 2000, the average yearly increase in benefits have been just 2.29%. An increase of 8.6% would be the greatest since 1981.
Why such a big change?
To be fair, Social Security will not be giving elders a large raise just for the sake of being kind. The explanation is simple: Inflation has set a 40-year record, and the calculation used to calculate COLAs is specifically built to ensure that benefits keep up with inflation. When costs rise rapidly, benefit hikes are significant in order to enable seniors to maintain purchasing power.
There are a variety of reasons inflation has grown, including abnormally high demand for items and services, coupled with supply shortages as a result of the war in Ukraine and the pandemic. Although the specifics may not be crucial to individual retirees, every senior should understand that their large Social Security raise is due to economic circumstances that could have a significant impact on society.
The fact is, because costs have skyrocketed, a bigger check won’t provide retirees more purchasing power; instead, it will try to ensure that their Social Security payments allow them to purchase the same level of goods and services as when prices were much lower. And if inflation continues to rise past this year’s COLA calculation, which happened in 2022, the benefits increase may not even be able to do so.
So the underlying reason for the increase in benefits is what recipients must prepare for. When inflation rises, you must change your investing strategy and personal budget.