The Grim Reality of Social Security’s Record “Raise” in 2023

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In just 12 days — October 13, 2022, at 8:30 a.m. ET — Social Security’s more than 65 million beneficiaries will find out exactly how much their monthly benefits will increase in 2023. For most of the 48.1 million retired workers who receive Social Security checks, the Cost of Living Adjustment (COLA) disclosure is the most important announcement of the year.

Unfortunately, it’s also an announcement with a long history of disappointment.

Image source: Getty Images.

Why is Social Security Cost of Living (COLA) Adjustment so Important?

The best way to think about Social Security’s COLA is as a way for the program to account for inflation, ie the rising price of goods and services. Since so many seniors rely on their Social Security income to make ends meet in retirement, it would make sense for their monthly payout to keep pace with inflation so they can continue to pay for the same package of goods and services. COLA is the “increase” that takes inflation into account.

You notice by using quotes around “raise” that this pay raise is not a traditional raise like the type you would get from an employer. Since this benefit increase is designed to align with inflation, it will never help recipients move forward like a real pay increase.

For the past 47 years, the consumer price index for urban wage earners and white-collar workers (CPI-W) has served as the program’s inflationary chain. It has eight major spending categories and a small mountain of subcategories, each with its own respective weighting. These weightings are important because they make it possible to express the CPI-W as a single figure that can be easily compared to the previous month or the period of the previous year to determine whether the total price of a large pre-determined package goods and services has increased or declined.

Calculating the Social Security cost of living adjustment is quite simple. The average CPI-W value of the third quarter of the current year (July through September) is compared with the average CPI-W value of the third quarter of the previous year. If the value goes up year on year, inflation has set in and Social Security checks will get a boost in the coming year. The amount of the “increase” is the annualized percentage increase in the average CPI-W value, rounded to the nearest tenth of a percent.

US inflation chart

A historic spike in US inflation will see Social Security benefits soar in 2023. Data on the US inflation rate according to YCharts.

Social Security checks should see record increases in 2023, but will still disappoint

Based on July and August CPI-W inflation data already announced, beneficiaries should expect a solid 8.8% COLA in 2023. But keep in mind that we don’t have September inflation data yet, which is the final puzzle piece needed to concretely calculate next year’s raise.

According to Mary Johnson, a Social Security policy analyst with the impartial senior advocacy group The Senior Citizens League (TSCL), the final cost-of-living adjustment is estimated at 8.7%. On a percentage basis, this would be the largest annual increase in payouts since 1982. But on a nominal dollar basis, it will be the largest increase in Social Security’s 87-year history.

While percentages are fun to watch, the 2023 record increase really shows up when you see what it will do to Social Security checks. Based on projected payouts by December 2022, the average retired worker should receive an additional $146 per month in January. The average disabled worker and survivor are expected to see their checks rise by $119/month and $116/month, respectively, by 2023.

However, beneficiaries may not be able to keep much of their ‘raise’. Keep in mind that the only reason the cost of living adjustment is expected to peak in 41 years is because inflation has skyrocketed in the US. With the costs of food, shelter, energy and medical care rising far above their historical standards, much of this extra money could flow straight back out of the checking accounts and wallets of retirees who rely on Social Security to make ends meet. .

A visibly concerned person staring intently out the window.

Image source: Getty Images.

Even a record COLA won’t solve this problem for retirees

But historically high inflation devouring next year’s COLA isn’t even the biggest problem for retirees. The elephant in the room is what has been happening to Social Security purchasing power since the turn of the century.

In May, a TSCL press release noted that, among other things, the purchasing power of Social Security dollars had fallen by as much as 40% since 2000. buy just $60 of those same goods and services.

How does this amount of purchasing power erosion happen in just 22 years? Look no further than the CPI-W for the answer.

While linking Social Security to the CPI-W in 1975 was a much better solution for passing cost-of-living adjustments than arbitrary sessions of Congress (which was the primary method of passing COLAs before 1975), The CPI-W has failed miserably to account for the rising costs faced by seniors since 2000. That’s because, as the full name implies, it follows 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, they spend their money very differently from the retirees who make up the bulk of Social Security beneficiaries, which has resulted in major expenses, such as lodging and medical care, being underweight in the annual COLA calculation.

Perhaps the most frustrating aspect of the CPI-W’s flaw is that lawmakers on both sides agree that it’s not working as intended, but they can’t agree on how to replace it. With no compromises on Capitol Hill, the stark reality for seniors is that the purchasing power of their Social Security income will almost certainly continue to decline, no matter how high COLA is in 2023 or the years beyond.


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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