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Soaring inflation is generally bad news for consumers — and that extends to seniors. In fact, seniors may be more likely to get hurt by rising living costs because Social Security commonly does a poor job of keeping pace with inflation.
Just take a look at this year’s cost-of-living adjustment (COLA). Seniors on Social Security saw their benefits increase by 5.9% at the start of 2022. But since then, the rate of inflation has well outpaced that increase.
Still, Social Security beneficiaries are, at this point, more than anxious to hear what next year’s COLA will look like. And while we won’t have that official number until Oct. 13, here’s a reasonable estimate of what seniors can expect.
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A much higher boost than in 2022
No matter what 2023’s Social Security COLA amounts to, it’s fair to say that it will be notably higher than the 5.9% boost seniors got in 2022. At one point, experts were saying that seniors could see a COLA as high as 11% in 2023. But based on more recent inflation data, it’s pretty clear that’s not happening.
In August, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased by 8.7% on an annual basis. The CPI-W is a subset of the Consumer Price Index for All Urban Consumers (CPI-U), which measures inflation on an even wider scale. And it’s the CPI-W specifically that’s used to calculate Social Security COLAs.
August’s CPI-W reading isn’t the only one that will be accounted for to come up with next year’s Social Security COLA. Rather, that number is based on CPI-W readings for the entire third quarter of the year. But still, it’s fair to assume that 2023’s Social Security raise will be closer to the 8.7% mark than the 11% mark.
That’s really not such a bad thing, though. For one thing, an 8.7% COLA, or a raise in that vicinity, is still substantial. And also, a lower COLA means inflation levels are starting to come down. That’s a good thing for seniors who may be buckling under the weight of higher living costs.
Let’s remember that Social Security COLAs may get announced in October, but they won’t kick in until the start of the new year. So a near-term drop in the cost of consumer goods — even a modest one — might really help seniors stay afloat until their benefits get a lift.
Stay tuned for a number of key changes
Not only should the Social Security Administration soon be announcing next year’s COLA, but it should also have an update on other important figures, like the earnings-test limit. That limit represents the total amount of money seniors who work and collect Social Security simultaneously can earn before risking having benefits withheld (note that the earnings-test limit only applies to seniors receiving benefits before having reached full retirement age).
Plus, the program will be announcing updates to its maximum monthly benefit, as well as changes that are apt to impact workers, like the amount of income that will be subject to Social Security taxes in 2023.
Chances are, next year’s COLA will get the most press. But it’s important to not gloss over those other details, as they’re pretty significant in their own right.
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