Millions of Americans receive a Social Security retirement benefit each month, and nearly nine in 10 retired workers depend on that income to some extent, according to Gallup.
Unfortunately, Social Security beneficiaries have fought a losing battle with inflation this year, and that has many seniors looking forward to a big cost-of-living adjustment (COLA) next year.
That said, the exact Social Security COLA will not be announced for another two weeks, and it now depends entirely on the September inflation report the U.S. Bureau of Labor Statistics will release on Oct. 13. In the meantime, retirees can use the latest news to estimate how much (or how little) their Social Security payment may increase next year.
Why the Social Security cost-of-living adjustment (COLA) fell short in 2022
Social Security COLAs are intended to shield the buying power of benefits from inflation, and the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is the barometer used to make the calculation. Specifically, the average CPI-W from the third quarter (July through September) of the current year is divided by the same metric from the previous year, and any increase becomes the COLA for the next year.
That methodology led to problems in 2022. The 5.9% COLA enacted this year — the largest increase in Social Security benefits since 1981 — actually fell short of the ferocious trajectory inflation has followed. In fact, The Senior Citizens League (TSCL) estimates that the average beneficiary was shortchanged $417.60 year to date through August due to rising prices.
Of course, the Social Security Administration had no way of knowing inflation would keep accelerating after it announced the 2022 COLA last October, but that is exactly what happened. On the bright side, that means retired workers and their spouses are on track to see an even bigger increase in their Social Security checks next year.
How much Social Security checks could increase in 2023
TSCL estimated the 2023 COLA could exceed 11% after the CPI-W increased 9.8% in June, but its forecast dropped to 8.7% when inflation slowed to 8.7% in August. If inflation continues to fall in September, the COLA applied to benefits next year could be less than 8.7%. But if inflation reaccelerates in September, the Social Security COLA could exceed 8.7%.
Let’s run through a few plausible scenarios:
Scenario 1: If inflation slows sharply to 6% in September, the COLA in 2023 would be 7.9%. In that scenario, the average retired worker benefit would be roughly $1,804.90 per month, representing an extra $132.14. And the average spousal benefit would reach $898.83 per month, representing an extra $65.80.
Scenario 2: If inflation slows more gradually to 8% in September, the COLA in 2023 would be 8.6%. In that scenario, the average retired worker benefit would be roughly $1,816.62 per month, an increase of $143.86. And the average spousal benefit would be $904.66 per month, an increase of $71.64.
Scenario 3: If inflation accelerates to 10% in September, the COLA in 2023 would be 9.3%. In that scenario, the average retired worker benefit would be roughly $1,828.33 per month, representing an extra $155.57. And the average spousal benefit would be $910.49 per month, representing an extra $77.47.
As a caveat, the three scenarios discussed above are estimates. While they cover a broad range of possibilities, inflation could slow more quickly or rise more rapidly. For that reason, retirees should hold off on making any big financial decisions until the Social Security Administration announces the official COLA next month.
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