For the vast majority of American seniors, Social Security benefits are crucial. In contrast to the over 90% of present retirees who rely on their monthly check to make ends meet, 84% of incoming retirees predict that they will rely on their Social Security check to a varied level during their golden years, according to a nationwide study by Gallup.
The COLA, which is published in the second week of Oct. and is key to the financial stability of both current and future retirees, is the most important yearly report.
What exactly is the Social Security COLA?
Simply explained, COLA is the “raise” that the more than 65 million Social Security beneficiaries get each year to account for the rising cost of services and goods (i.e., inflation). The term “raise” is enclosed in quotation quotes to show that Social Security payments are increasing to keep benefits in line with inflation. Therefore, it is not a raise in the commonly understood meaning.
Since 1970, the CPI for Clerical Workers and Urban Wage Earners has been used to determine Social Security COLAs (CPI-W). In this case, economists could exhale in relief at acronyms. The CPI-W is made up of a number of subcategories and eight main expenditure categories, each with a different percentage weighting. This enables the consolidation of many categories into a single number that can be immediately contrasted with the previous month or year.
The COLA for Social Security is computed using just the CPI-W figures for the third quarter (July through Sept.) of the current and past years. If the average Q3 CPI-W numbers for the current year is more than the average Q3 CPI-W numbers for the last year, beneficiaries get an increase equating to the percentage increase, that is rounded to the closest tenth of a percent.
We must say goodbye to the anticipated COLA of 11.4% for 2023.
The 48 million retirees who receive monthly payments from Social Security are looking forward to the upcoming year seeing their greatest “increase” in more than 40 years.
An extraordinarily high inflation measurement of 9.1% in June provided the foundation for what some policy analysts predicted may be a double-digit percentage rise in Social Security payouts in 2023. According to Mary Johnson, who is a policy analyst for TSCL, which is a nonpartisan senior advocacy organization, the cost-of-living adjustment for 2023 may be as high as 11.4% if U.S. inflation continues to rise beyond forecasts.
Social Security beneficiaries run the risk of losing most or all of their record-breaking COLA in 2023 due to rising costs. CPI-U, a comparable inflation indicator to the CPI-W, showed a startling 13.1% increase in the price of food consumed at home, a large 5.7% increase in housing costs, and a significant 5.1% increase in the price of medical care services over the previous year. These are all major expenses for senior citizens and a clear indication that their COLA would likely be wiped out by increased costs in the following year
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