Good news, a little.
If you’re retired or about to retire, next year’s Social Security checks are likely to see one of the biggest blows on record as a result of rising consumer prices.
The average beneficiary can be online to get up to $ 180 more a month starting next January, according to recent inflation. And they can almost certainly expect at least $ 120 extra.
These are the numbers based on data from the Social Security Administration itself. The figures were managed 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 shrink a lot so far this year as a result of soaring inflation and turmoil in financial markets.
The consumer price index rose 8.6% during the year to May, 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 sink with the financial markets.
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And anyone living on a fixed income, for example as a result of a life annuity, is being especially affected by inflation. Very few annuities adjust payments to account for inflation, so checks have simply lost 9% of their purchasing power in one year. Even those inflation-adjusted annuities typically only increase payments by a maximum of 2% or 3% per year.
It won’t 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, which was first instituted during the inflationary period of the 1970s, is calculated by comparing consumer prices for each summer with prices for the previous summer. The Social Security Administration will examine the average CPI figures for July, August and September and compare them with the average for the same three months last year.
CRFB points out that, based on this math, we are already heading for a cost-of-living adjustment for 2023 of at least 7.9%. This is practically a guaranteed minimum. The reason? The May CPI figure is already 7.9% above last summer’s average. Thus, even if there are no further price rises in the economy during the rest of the summer and the rest of the year, we are observing this level of increase.
For an average Social Security benefit of $ 1,657 per month, that increase would be an additional $ 121 per month.
But absolutely no one thinks 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 pace, the next COLA is likely to be a staggering 10.8%. For someone who currently receives an average monthly check that would be worth $ 178 more a month.
This is good news for retirees, but only to a certain extent. The extra money does not represent a real extraordinary benefit, but only tries to offset the rising cost of household expenses.
In fact, inflation harms Social Security beneficiaries. These cost-of-living adjustments only come in late, based on last year’s inflation, so you’re always losing ground slightly. Oh, and rising inflation means more retirees will end up being taxed (in fact, double the tax) on their profits. When Congress introduced Social Security taxes in the 1980s, they set income thresholds and cleverly avoided indexing them to inflation.
On the positive side, retirees whose costs rise more slowly than official inflation figures will benefit from the latest cost-of-living adjustments. According to the U.S. Department of Labor, a separate cost-of-living index they calculate for seniors rose 8.0% in the 12 months to May.
This is still pretty bad. But it’s not as bad as consumer price inflation for everyone else.
These days, we’ll catch the good news we can find, when we find it.