Good news – somewhat.
If you are retiring or about to retire, next year’s Social Security checks are likely to see one of the biggest blows recorded as a result of rising consumer prices.
The average beneficiary may be ready to receive up to $ 180 more per month from next January, based on recent inflation. And it is almost certain that they can expect at least $ 120 extra.
These are the numbers based on the data of the Social Security Service itself. The figures were conducted by the Center for a Responsible Federal Budget, a well-known think-tank in Washington, DC.
Higher payments will be welcome news for retirees, who have seen their household finances squeeze badly so far this year as a result of skyrocketing inflation and financial market turmoil.
The consumer price index rose 8.6% year-on-year, well ahead of the 5.9% annual inflation adjustment given to social security beneficiaries in January. Meanwhile, retirees with stock savings and bonds have seen their portfolios fall with the financial markets.
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And anyone living on a steady income, for example as a result of a lifetime income, is particularly hard hit by inflation. Very few incomes adjust payments to take inflation into account, so checks have simply lost 9% of their purchasing power in one year. Even those revenues adjusted for inflation usually only increase payments by a maximum of 2% or 3% per year.
It will not be until October that the Social Security Administration will officially announce the annual cost of living adjustments for 2023. But the formula it will use is public and we already have some of the numbers.
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The annual COLA, first introduced during the inflation period of the 1970s, is calculated by comparing consumer prices each summer with those of the previous summer. The Social Security Administration will examine the average CPI numbers for July, August and September and compare them with the average for the same three months last year.
The CRFB points out that based on this math, we are already well on our way to a cost-of-living adjustment for 2023 of at least 7.9%. This is more or less a guaranteed minimum. The reason? The CPI for May is already 7.9% above last summer averages. So, even if there are no further price increases in the economy for the rest of the summer and the rest of the year, we are still looking at this level of growth.
For an average Social Security benefit of $ 1,657 per month, this increase would be an additional $ 121 per month.
But no one believes that consumer prices stopped rising on May 31 and will remain stable for the rest of the year. The CRFB estimates that if inflation continues to rise at its recent rate, the next COLA is likely to be a staggering 10.8%. For someone currently receiving an average monthly check that would be worth another $ 178 per month.
This is good news for retirees but up to a point. The extra money does not represent a real unexpected profit, but simply tries to make up for the rising cost of household expenses.
Inflation really hurts Social Security beneficiaries. These cost-of-living adjustments are only delayed, based on last year’s inflation, so you always lose ground slightly. Oh, and rising inflation means more retirees will end up being taxed (double taxed, in fact) on their benefits. When Congress introduced Social Security taxation in the 1980s, they set income limits and cleverly avoided indexing them for inflation.
On the positive front, retirees whose costs are rising more slowly than official inflation figures will benefit from the latest cost-of-living adjustments. According to the US Department of Labor, a separate cost-of-living index for the elderly rose 8.0% in the 12 months to May.
This is still very bad. But it is not as bad as consumer price inflation for everyone else.
These days, we will get as much good news as we can find when we find it.