Social Security Benefits Increasing In 2023 Because Of Inflation

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Earlier this year, the Social Security Administration announced that retirees would receive larger Social Security benefits due to inflation. With inflation at its highest level in nearly 40 years, the Social Security Administration is implementing an 8.7% cost-of-living adjustment as of January 2023.

This means that the average retirement benefit will increase to $1,827 per month, an increase of $146 from the previous year. Below, Select looks at why the Social Security Administration adjusts benefits due to inflation and how it may affect the program.

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Why Are Social Security Benefits Adjusted for Inflation?

In 1973, the Social Security Administration tied benefits to a price index known as the Consumer Price Index for Urban Wage and White-collar Workers (CPI-W). Every year, the NSSO uses this index to adjust the value of the benefits.

Benefits represent about 30% of retirement income for all seniors, so the adjustment ensures that the value of benefits does not decrease with inflation. And of course, since most people don’t receive a significant amount of retirement income from Social Security benefits, you should try to save for retirement independently through an employer-sponsored 401(k) or individual retirement account (IRA).

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Social Security benefits are funded through payroll tax deductions that are split between the employee and the employer. The total payroll tax for Social Security is 12.4%, so employees and employers each pay 6.2%. The wage tax only applies up to a certain income limit.

The NSSO adjusts the income limit every year in response to wage developments. For 2023, the payroll tax will apply to up to $160,200 of an individual’s salary, an increase of $147,000 from the previous year.

How does the COLA affect the program?

Social Security is funded by current employees paying for current beneficiaries. Due to demographic changes in the coming years, there will be a decreasing number of workers paying for an increasing number of benefits. This means that the Social Security trust fund could run into a funding shortfall due to too few employees paying for too many beneficiaries.

The Social Security Administration predicts that the Social Security trust fund will be exhausted by 2034 and retirees will receive only 77 percent of their benefits if Congress doesn’t take action to fix the funding problem before then.

The 8.7% COLA adjustment could accelerate how quickly the trust fund is depleted, according to Shai Akabas, director of economic policy at the Bipartisan Policy Center.

However, there is no specific projection on how the new COLA will affect the trust fund’s exhaustion date.

It boils down

With inflation driving up prices in everything from food to gasoline, retirees can look forward to higher Social Security checks in 2023. Social Security benefits will rise 8.7% to help retirees deal with inflation. This could affect how quickly Social Security trust funds are depleted, but only time will tell.

Editor’s note: Opinions, analyses, assessments or recommendations expressed in this article are those of the Select editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.

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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