A Big Boost Is Coming to Social Security — But Will It Be Enough for You?
Just how massive will 2023’s Social Security cost-of-living adjustment (COLA) be? That’s the big question.
Inflation has been soaring for well over a year, and in recent months, it’s been notably high. That’s put a strain on not just retirees, but people in general.
The good news is that sky-high inflation is setting the stage for Social Security’s largest COLA in decades. Earlier this year, estimates were calling for an 11% boost in benefits. And while a bump that high seems unlikely at this point, we could easily see a COLA in the 9% range. Even if next year’s COLA falls between 8% and 9%, it would still trump the 5.9% COLA seniors received at the start of 2022.
But while Social Security recipients may be anxious to hear exactly how high next year’s COLA will be, the reality is that no matter what, it’s apt to ultimately fall short. And that’s something seniors should come to terms with.
Will 2023’s COLA be a giant letdown?
While many seniors would no doubt welcome a giant 2023 COLA with open arms and bank accounts, the reality is that the best we can expect out of next year’s raise is for it to keep pace with recent levels of inflation. Seniors should not by any means expect to come out ahead financially once their Social Security benefits go up.
In fact, seniors on Social Security have been consistently losing buying power due to the inadequacy of COLAs. The nonpartisan Senior Citizens League reports that beneficiaries have lost an astounding 40% of their purchasing power since 2000.
A big part of the problem is the way COLAs are calculated. Those raises are based on annual third-quarter data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But that index is heavily weighted by costs that apply to urban workers more so than retired seniors.
Healthcare, for example, is not a very large factor in the CPI-W. Yet it’s many seniors’ largest expense.
Advocates have, for years, been begging for a better way to measure Social Security COLAs. One popular solution is to use a Consumer Price Index for the Elderly, or CPI-E.
But for the purpose of calculating 2023’s COLA, we’re stuck with the CPI-W in the absence of change. And while seniors can expect next year’s Social Security raise to be massive, it may not do very much to help them cover their expenses at a time when everything from food to apparel to utilities is overwhelmingly sky-high.
The solution could boil down to savings
Until lawmakers change the way Social Security COLAs are established, beneficiaries might struggle to maintain their buying power. For current retirees, there may be little to do about that. But future retirees have an opportunity to avoid that dreaded scenario by building savings so they have money on top of Social Security to live on.
As it is, Social Security was never meant to sustain seniors in the absence of outside income. But given that the system for calculating COLAs has proven itself to be a colossal failure, it’s important that future retirees take matters of financial security into their own hands. And saving independently is a great way to do that.
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