In October, seniors on Social Security got some pretty good news — that benefits will be increasing by 8.7% in 2023. That cost-of-living adjustment (COLA) is actually the largest one to come down the pike in decades. And it could be enough to help seniors recover from the financial hit they may have taken in 2022.
This year, many consumers have gotten battered by inflation. And seniors whose primary income source is Social Security have no doubt seen their buying power shrink as living costs have soared.
An 8.7% boost might help seniors get to a better place financially in 2023. But is a COLA that large really something to be happy about? Or will seniors end up in just as tough a spot in the new year as they were this year?
It’s a matter of how inflation trends
There’s a good chance seniors on Social Security will, in fact, gain buying power in 2023. But that’s only going to happen if inflation levels taper off.
The whole reason Social Security recipients are getting such a large raise next year is that inflation warranted it. And if inflation levels shrink in the new year (would could happen in the wake of the Federal Reserve’s aggressive interest rate hikes), seniors might gain buying power based on their COLA for the first time in years.
But if inflation ticks back upward, seniors will be no better off. They may even land in a worse position come 2023.
Just look at what happened in 2022. At the start of the year, Social Security recipients got a 5.9% COLA. At the time, that raise was hailed as record-breaking (even though it’s by far not the largest COLA seniors have ever received).
But look at how well that COLA has held up in the course of 2022. The Consumer Price Index (CPI) has risen at a much higher rate on an annual basis than 5.9%, leaving Social Security beneficiaries in the lurch.
Now here’s one bit of good news. In October, the CPI rose 7.7% on an annual basis. A 7.7% uptick is high by historical standards, but that percentage is already a notch below the 8.7% COLA Social Security beneficiaries have locked in. (For context, Social Security COLAs are calculated based on third-quarter data from a subset of the CPI — the Consumer Price Index for Urban Wage Earners and Clerical Workers.)
If the CPI continues to register inflation readings below 8.7%, it means seniors could end up in a very good place in 2023. But without a crystal ball, we can’t say for sure that that’s going to happen.
All told, next year’s COLA is a mixed bag. It’s great that Social Security benefits are getting a nice lift, but the whole reason for that giant raise is a higher cost of living. Let’s hope that inflation continues to cool so that seniors can make the most of their 2023 COLA — and perhaps use that extra money to help shore up their finances after a very tough 2022.
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