Is the New COLA Enough To Fight Inflation?

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In an effort to keep up with record inflation, the Social Security Administration recently announced its largest cost-of-living adjustment in more than four decades. The 2023 COLA is 8.7%, meaning the average Social Security check will increase by about $140 starting next year.

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While 8.7% is a historically high adjustment — and the highest since 1980, when COLA stood at 14.3% — you may be wondering if this is enough to match inflation. There is no easy answer here and it really depends on the financial situation of the Social Security recipient.

“We believe that the Social Security cost of living (COLA) adjustment will go a long way toward reducing the sting associated with rising inflation that retirees have experienced over the past 12 months,” said Brian Mawhinney , CFP, CRPC, head of financial planning with MassMutual. “But maybe it’s not enough for everyone. Despite the rise in the cost of living, it is important to keep in mind that the way retirees experience these price changes is unique to their personal situation.”

Here are some factors that come into play as to whether the new COLA will be enough to keep up with inflation.

housing

“A retiree with no mortgage, or with a fixed mortgage, may not feel the pinch of rising housing costs the way a renter might,” Mawhinney said. “Housing plays a huge role in determining a client’s monthly fixed expenses in retirement, and low interest rates have caused many changes in housing markets in recent months.”

Place

“Geography will also play an important role as we move into the winter months,” Mawhinney said. “Cooler climates are likely to feel the pinch of rising energy costs, while city dwellers may absorb higher costs than retirees in more rural areas.”

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Discretionary costs

“We find that retirees tend to forgo certain discretionary expenses, such as leisure travel, when they feel a constraint on their monthly budget,” Mawhinney said. “In addition, as they age, retirees become less socially active due to physical limitations and the loss of loved ones.”

Despite this trend, other financial experts are firmly not convinced that the new COLA will be enough to match inflation.

“COLA doesn’t track inflation enough, despite the fact that COLA is naturally designed to track current inflation,” said Ethan Caffrey, a certified financial advisor and the CEO of Storific’s marketer. “There will be an 8.7% increase for Social Security recipients as there was an 8.7% increase in this year’s CPI rate; however, the 8.7% CPI increase happened in the previous year and recipients will only receive their 8.7% increase from 2023 and beyond.

He added: “What about the fact that everything was more expensive last year? How are recipients supposed to cover that since there is no retroactive increase? Because of this, given the current character, receivers are always behind the eight ball. In summary, the fact that the increase lags behind the increase in the CPI means that the benefit of the recipients is reduced.”

Hopefully, inflation will cool down in 2023 (as expected), and COLA will continue for retirees.

More from GOBankingRates

This article originally appeared on GOBankingRates.com: Social Security 2023: Is the New COLA Enough to Fight Inflation?

The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

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