The pain caused by high inflation is often felt most severely on the budgets of currently retired people because of their fixed income.
The only silver lining to the relatively recent sky-high spike in inflation is the possibility of a significant increase in the cost-of-living adjustment (COLA) for Social Security recipients in 2023.
The cost-of-living adjustment (COLA) for Social Security in 2022 (for 2023) has been estimated to be in the range of 8.6 to 10.5 per cent. Since 2009, there has not been an adjustment made to the cost of living that is at this level.
It won’t be until January 2023 that the Social Security cost-of-living adjustment for 2022 will actually take effect.
Therefore, over the next half year, retirees can anticipate seeing a continued strain placed on their retirement incomes. Everything from mortgage rates and rent to the cost of food and even medical care appears to be going up in price.
This includes necessities such as food and healthcare.
Index of Consumer Prices for June of 2022 and Social Security
The consumer price index (CPI) for June was just released; it showed that prices have increased by 9.1 per cent over the previous twelve months, without any adjustments made for seasonal factors.
Since the inflation year that ended in November 1981, this is the year that has seen the largest year-over-year increase.
Based on these CPI numbers, the Senior Citizens League has calculated that the Social Security Cost-Of-Living Adjustment for the year 2023 could be a staggering 10.5 per cent. Which is a sizeable increase from the 5.9 per cent COLA that Social Security provided the previous year.
If the Social Security COLA for 2023 is set at 10.5 per cent, the average Social Security recipient will receive approximately $175 more in their paycheck each month.
This is based on the average Social Security benefit, which is currently set at $1688 per month.
For retirees who already receive a higher-than-average Social Security retirement benefit, the increases in their monthly Social Security checks would be even more significant.
This would be the largest increase in benefits provided by Social Security since the year 1981.
Imagine for a moment that the United States and Russia are engaged in a fierce battle.
Olivia Newton-“Physical” John’s is at the top of the Billboard charts when Ronald Reagan is inaugurated as president.
Also keep in mind that if the Social Security COLA is high for 2023, this could result in an increase in the amount of taxes that you must pay on your Social Security benefits.
To be clear, at this point all we can do is make an educated guess about what the cost-of-living adjustment (COLA) for Social Security will be in 2023 based on the most recent CPI data.
If the Federal Reserve is successful in bringing down inflation numbers more quickly than expected, the Social Security COLA for the year 2023 may be lower than expected.
In a similar vein, if inflation remains at its current high level for an extended period, the cost-of-living adjustment (COLA) for Social Security recipients may end up being significantly higher than what has been estimated here.
Nobody I know had the idea that inflation would suddenly disappear overnight. If things go according to plan, it should start falling, but I would be surprised if it didn’t take quite some time to get it down to the Fed’s target of approximately 2 per cent per year.
How Exactly Is The COLA Determined For Social Security?
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To determine the actual cost-of-living adjustment (COLA) for Social Security benefits in 2023, the Social Security Administration (SSA) will use the average inflation rate for the third quarter, as determined by the CPI-W.
This will allow the SSA to determine the amount of the increase in benefits for the following year.
As a point of reference, the Social Security Cost-of-Living-Adjustment (COLA) for the year 2022 was 5.9 per cent, which represented the largest increase in the Social Security COLA in nearly forty years.
If you are on a fixed income and considering making a significant purchase that is contingent on a record Social Security COLA being affordable, I would advise you not to rush out and make the purchase because a lot can change in a few months.
Unfortunately, a significant portion of the increase in retirement income that will be provided to you by the COLA for Social Security in 2023 will be consumed by the costs associated with essential expenses such as food, electricity, and gas.
