Good news — sort of.
If you’re retired or just about to retire, next year’s Social Security checks are likely to see one of the biggest bumps on record as a result of surging consumer prices.
The average beneficiary may be in line to get as much as $180 more a month starting next January, based on recent inflation. And they are almost certainly can expect at least an extra $120.
These are the numbers based on the Social Security Administration’s own figures. The numbers were run by the Center for a Responsible Federal Budget, a well-known Washington, D.C. think-tank.
The higher payments will be welcome news for retirees, who have seen their household finances squeezed badly so far this year as a result of rocketing inflation and turmoil in the financial markets.
The consumer-price index rose by 8.6% in the year through May, way ahead of the 5.9% annual inflation adjustment handed out to Social Security beneficiaries in January. Meanwhile, retirees with savings in stocks and bonds have seen their portfolios slump with the financial markets.
And anyone living on a fixed income, for example as a result of a lifetime annuity, is being hit especially hard by inflation. Very few annuities adjust payouts to account for inflation, so the checks have simply lost 9% of their purchasing power in a year. Even those annuities that do adjust for inflation typically only hike payments by 2% or 3% a year at most.
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.
The annual COLA, which was first instituted during the inflationary period of the 1970s, is calculated by comparing consumer prices each summer with the prices the previous summer. The Social Security Administration will look at the average CPI numbers for July, August and September, and compare them to the average for the same three months last year.
CRFB points out that based on this math, we are already on track for a cost-of-living adjustment for 2023 of at least 7.9%. That’s pretty much a guaranteed minimum. The reason? May’s CPI figure is already 7.9% above the averages for last summer. So even if there are no further price rises in the economy at all for the rest of the summer and the rest of the year, we’re looking at this level of increase.
For an average Social Security benefit of $1,657 a month, that increase would work out at $121 extra dollars a month.
But absolutely nobody thinks consumer prices stopped rising on May 31 and will stay flat for the rest of the year. The CRFB estimates that if inflation instead carries on rising at its recent rate, the next COLA is likely to be a stunning 10.8%. For someone currently receiving an average monthly check that would be worth another $178 a month.
It’s good news for retirees but only up to a point. The extra money doesn’t represent a real windfall, but just tries to make up for the rising cost of household expenses.
Inflation actually hurts Social Security beneficiaries. These cost-of-living adjustments only come in arrears, based on the previous year’s inflation, so you are always slightly losing ground. Oh, and rising inflation means more retirees will end up being taxed (double taxed, actually) on their benefits. When Congress introduced Social Security taxation in the 1980s they set income thresholds, and cleverly avoided indexing them for inflation.
On the positive front, retirees whose costs are rising more slowly than the official inflation figures will benefit from the latest cost of living adjustments. According to the U.S. Labor Department, a separate cost-of-living index they calculate for the elderly rose by 8.0% in the 12 months to May.
That’s still pretty bad. But it is not quite as bad as the consumer price inflation for everybody else.
These days, we’ll take what good news we can find, when we find it.