Say Goodbye to Your 11.4% Social Security Raise in 2023

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For the vast majority of elderly Americans, Social Security income is indispensable. National pollster Gallup found that nearly 90% of current retirees rely on their monthly payout to make ends meet, while 84% of future retirees expect to rely more or less on their Social Security check during their golden years.

Given the importance of Social Security to the financial well-being of current and future retirees, no annual announcement takes precedence over the Cost of Living Adjustment (COLA), which will be released the second week of October.

Image source: Getty Images.

What exactly is the Social Security Cost of Living Adjustment (COLA) Adjustment?

In simple terms, COLA represents the “increase” that more than 65 million Social Security beneficiaries receive most years to account for the rising price of goods and services (i.e., inflation). “Increase” is in quotes to make it clear that Social Security checks are increasing to keep payouts in line with inflation. So it is not a real elevation in the traditional sense of the word.

The COLA determinant of Social Security for the past 47 years has been the consumer price index for urban wage earners and white-collar workers (CPI-W). This is where economists are breathing a sign of relief for acronyms. The CPI-W has eight major spending categories and many dozens of subcategories, all with their own respective percentage weights. This allows numerous categories to be summarized into a single number that can be easily compared to the previous month or year.

The Social Security COLA is determined using only the third quarter (July to September) CPI-W values ​​of the current and previous years. If the average CPI-W value for the third quarter of the current year is higher than the average CPI-W value for the third quarter of the previous year, beneficiaries will receive an increase proportional to the percentage increase, rounded to the nearest tenth of a percent.

US inflation chart.

Historically high inflation eased slightly in July. US inflation data by YCharts.

It’s time to kiss that estimated 11.4% COLA by 2023

For the coming year, Social Security beneficiaries — specifically the 48 million retired workers who receive a monthly check — are expecting their biggest “raise” in more than four decades.

A historically high inflation rate of 9.1% in June set the stage for what some policy analysts believe could be a double-digit percentage increase in Social Security checks in 2023. Mary Johnson, a policy analyst at The Senior Citizens League (TSCL), an impartial senior advocacy group, suggested in July that the cost of living adjustment could reach 11.4% by 2023 if US inflation continued to exceed expectations. .

After the release of July’s inflation data by the US Bureau of Labor Statistics, one thing is crystal clear: inflation is no longer exceeding analyst expectations. With crude oil prices falling and fuel pump pain easing (if only temporarily), prevailing inflation eased slightly in July. By doing so, it far from puts the high-end estimate of a COLA of 11.4% in 2023 off the table now.

To add to this, Social Security recipients could lose much or all of their historically high COLA by 2023 due to rising costs. Over the past 12 months, the Consumer Price Index for All Urban Consumers (CPI-U) – a comparable inflation measure to the CPI-W – showed a staggering 13.1% increase for food at home, a significant 5.7% increase in shelter costs, and a 5.1% increase in the cost of medical care. These are all major expenses for elderly Americans and a good indication that their COLA will likely be swallowed up by higher costs in the coming year.

A visibly concerned person with their chins resting on their clenched hands.

Image source: Getty Images.

Retired workers have had the short end of the stick for more than two decades

However, it’s nothing new to retired workers that their Social Security income is being swallowed up by rapidly rising prices. In fact, for more than 20 years, elderly Americans have had the shortest end of America’s most important social program.

In May, TSCL released a report showing that the purchasing power of Social Security dollars has fallen by as much as 40% since 2000. the same goods and services. While total Social Security checks increase over time, they don’t come close to keeping up with the inflation that Americans face at age.

If you’re wondering how this is even possible at all, look no further than the CPI-W. As the full name suggests, this is an inflation index that tracks the spending pattern of “urban wage earners and white-collar workers.” These are usually people of working age who are not receiving Social Security benefits. More importantly, their spending habits often differ significantly from that of seniors. As a result, major expenses for retired employees are often underweighted in the CPI-W, while minor expenses, such as clothing and education, are given a higher weight.

In short, the CPI-W is bad at measuring inflation for the majority of Social Security beneficiaries. It really doesn’t matter how big the cost of living adjustment is in 2023; seniors will almost certainly see the purchasing power of their Social Security dollars continue to decline over time.


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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