In order to assist seniors keep up with inflation, Social Security may receive a historic boost in 2016. According to Mary Johnson, Social Security and Medicare policy analyst for senior advocacy group the Senior Citizens League, the most recent estimate for a cost of living adjustment (COLA) in 2023 is 9.6 percent (SCL).
Consumer Price Index (CPI) data for July revealed an increase in inflation of 8.5% over the previous 12 months, making it more challenging for those on fixed incomes, such as those from Social Security benefits, to make ends meet.
The Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-, third-quarter statistics will serve as the basis for the 2023 COLA.
W. Johnson predicts that the announcement will occur around October 13 following the publication of the September CPI report. According to Johnson, the COLA may reach 10.1 percent for 2023 if inflation “runs hot” or is greater than typical. She states that 9.3 percent might be more likely if it runs lower than the most recent data.
According to Johnson, a 9.6% adjustment would result in a $158.98 rise in the typical monthly Social Security retirement income of $1,656.
The previous COLA was 5.9 percent, thus this year’s COLA rate of 9.6 percent would be very high by historical standards. The table below displays rate increases during the previous 10 years. As you can see, even the increase to 5.9 percent in 2021 was much higher than the 0-2.8 percent range during the previous ten years.
|Year||COLA rate (percent)|
COLA might not be adequate.
The CPI-W serves as the standard for calculating monthly Social Security benefit increases, but the Senior Citizens League has long argued that the index does not accurately reflect how seniors live.
The CPI-W is sometimes criticized for the weight it provides to items like gasoline, which urban wage and clerical employees may need more frequently than retired elders for commuting to work each day. According to the SCL, this figure understates the inflation that Social Security recipients have to deal with because it does not account adequately for the costs that seniors incur for housing or healthcare.
The Consumer Price Index for the Elderly, or R-CPI-E, is recommended by the league in place of the CPI-W. The R-CPI-E is primarily focused on the spending habits of senior citizens. According to the group, if the R-CPI-E had been used to determine benefits, a senior who applied for Social Security with an average level of benefits over thirty years ago would have gotten roughly $14,000 more in retirement.
A two-edged sword for low-income workers is COLA.
Higher COLA hikes might have an impact on people who receive low-income assistance. The eligibility of low-income assistance recipients to receive that aid may suffer due to higher benefit amounts the following year.
In 2021, 37% of participants in SCL’s new Seniors Priority Survey said they received low-income support.
In 2022, about 14% of survey respondents claimed that their increased Social Security pension actually lowered the amount of low-income assistance they received, while another 6% claimed that they were no longer eligible for at least one other program. To remain eligible for benefits under low-income assistance programs, recipients must maintain a specific income threshold. One of the highest COLA increases in history, 5.9% percent last year’s hike put many people over the eligibility threshold.
A substantial portion of seniors might find themselves in a lose-lose situation where they are phased out of their low-assistance program criteria but still unable to pay inflation due to rising prices if the COLA increases even higher in 2023.
To sum up
In 2023, Social Security is anticipated to get a sizable COLA due to the ongoing rise in inflation. The boost will undoubtedly be appreciated, but seniors will seek a sum that at the very least covers the difference between their monthly income and the rate of inflation.