Should You Hope for a Large Social Security Raise in 2023?

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Last October, Social Security seniors were notified of a 5.9% cost of living adjustment, or COLA, for 2022. The news was generally received with excitement, as that 5.9% increase provided the biggest boost. benefit that had been seen in years.

Meanwhile, we’re only about a month and a half away from the 2023 COLA announcement, which should be unveiled in mid-October this year. Early estimates call for an even bigger COLA in 2023 due to rampant inflation. But is that something seniors should really hope for?

Image source: Getty Images.

A big social security bump is actually not good news

Given the way the cost of living has soared this year, it’s easy to see why so many retirees want a big COLA by 2023. But if there’s a massive increase coming, they shouldn’t be fooled into thinking they’re a lot of money. will gain more purchasing power.

The formula used to calculate Social Security COLAs often doesn’t account for costs specific to seniors, such as health care. So the raises they get often fall short of helping them keep up with the rising cost of living.

In addition, suppose there is a 10% COLA for 2023. All that really means is seniors will see their benefits increase by 10% to account for the fact that the general cost of living is 10% higher. So in that situation, Social Security recipients won’t really get ahead financially.

When will we be done with rampant inflation?

That’s the big question, isn’t it? Inflation has soared since last year, fueled in part by excess consumer demand, including supply chain problems and stimulus policies. There was no federal stimulus on the table this year, but consumer demand continued to outpace supply.

The Federal Reserve hopes to narrow that gap by raising interest rates. The logic is that as borrowing becomes more expensive, consumer demand will decline, reducing the pressure on supply chains.

We may see a modest decline in inflation in the second half of 2022. But that doesn’t mean we’ll be back to moderate levels anytime soon. So those with Social Security can expect the cost of living to remain high for quite some time.

Meanwhile, next year’s Social Security COLA will be based on third-quarter inflation data — hence the October announcement. If inflation starts to moderate in October or after, this will not affect the increase for 2023. An ideal situation would be for inflation to stop falling at that point, so seniors can get a large increase and then see their cost of living decrease modestly. But no one should expect rampant inflation to disappear any time soon.

All of this really underscores the problem with relying too heavily on Social Security for retirement income. COLAs, even if they are larger, do not help seniors increase their purchasing power. Those who want more financial freedom later on should make sure they retire with healthy nesting eggs to tap or line up other sources of income, such as part-time work, that don’t rely on a specific inflation-related formula like COLAs.

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The Motley Fool has a disclosure policy.


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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