There’s a reason seniors on Social Security tend to struggle financially. Those benefits, contrary to what some may have been led to believe, won’t replace workers’ pre-retirement earnings in full. For average earners, they’ll replace about 40% of pre-retirement income, and that’s generally not enough to live on (at least not in a comfortable manner).
It’s for this reason that many seniors may be eagerly awaiting news of a giant cost-of-living adjustment, or COLA, for 2023. In 2022, benefits rose 5.9% as a result of higher inflation levels during the latter part of 2021. Since inflation has been even more rampant this year, it’s fair to assume that next-year’s Social Security raise will be big.
Still, there’s a good chance seniors will end up disappointed with the COLA they receive in 2023. So it’s best not to bank on a giant raise for the following reasons.
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1. We don’t have full inflation data
Social Security COLAs are based on third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Since we’re still in the midst of the third quarter of the year, we don’t know what inflation levels will look after all is said and done.
If inflation takes a dip in September (which, to be clear, would be a good thing for consumers), seniors on Social Security could see less of a raise in 2023. And we won’t know what September’s numbers will look like until the first half of October, which is when the Social Security Administration makes its yearly COLA announcement.
2. A generous COLA might still fall short
Seniors who received a 5.9% COLA this year may have been happy with that bump — until inflation quickly began to outpace it. Unfortunately, the same scenario could arise again in 2023.
Even if seniors see their benefits go up significantly, they might still end up losing out on buying power. So a giant raise may not be the financial salvation Social Security recipients are hoping for.
Don’t sink your hopes into a giant raise
There’s a good chance that Social Security benefits will rise quite a bit in 2023. But will that automatically better your financial picture? Not necessarily.
If you’re having a difficult time making ends meet, next-year’s Social Security raise is unlikely to change that for you. A better bet is to rethink your lifestyle and do your best to make changes that give you more financial breathing room. That could mean downsizing your home, reducing some expenses, or relocating to a part of the country where your benefits will go further.
Part-time work is another option worth considering if you feel that Social Security has been letting you down. Not only might a job help with cash flow, but it might also afford you the opportunity to save and invest some money.
Once you’ve reached full retirement age, you can earn any amount of money from a job without it impacting your Social Security benefits. So it pays to explore that option — even if the Social Security Administration does announce a large COLA for 2023.
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