The Unintended Consequences of a Potentially Huge Social Security Increase


Social Security can provide great supplemental income in retirement for some, but it is the primary source for many others. Of the beneficiaries, 12% of the men and 15% of the women depend on it for more than 90% of their income.

So it is important to ensure that the purchasing power of a person’s benefits does not fall due to inflation. In normal times that is about 2% per year; otherwise it could be 8.5% inflation from July.

To help with this, Social Security has a cost of living (COLA) adjustment. It increases monthly benefits based on the increase in the Consumer Price Index for Urban Wage Earners and Employees (CPI-W) from the third quarter of the previous year. The COLA in 2023 will therefore be based on the increase in the CPI-W of the third quarter of 2022.

With inflation at levels not seen in decades, the 2023 COLA is expected to be the largest since 1981.

Image source: Getty Images.

The 2023 COLA is expected to be huge

We won’t know the exact COLA until October, but it’s safe to assume it won’t be below 8%. For perspective, in the last 20 years, the only time COLA was above 4% was in 2009 during the Great Recession (5.8%), and this year when we came to rest from the peak of the pandemic (5, 9%).

If we take the conservative route and assume an 8% increase, Social Security’s average monthly retirement check goes from $1,669 to $1,802. The maximum benefit for people who claim early at age 62 is $2,553, the maximum at full retirement age is $3,612, and the maximum for deferral up to $70 is $4,529.

And while any increase helps, especially for someone who is primarily dependent on Social Security, unfortunately it can have some unintended negative consequences.

It may make you ineligible for other programs

Tens of millions of people depend on low-income aid programs across the country. Whether it’s the Supplemental Nutrition Assistance Program (SNAP); the Women, Babies and Children (WIC) program; Medicaid, or Head Start, many serve the vital needs of the most vulnerable.

But these programs are designed to help low-income people, so there are income limits to eligibility. In California, for example, the highest income a two-person household can earn to qualify for Medi-Cal (the Medicaid program) is $25,268.

With a large COLA increase, some people may not qualify for certain services or enter the phase-out zone where benefits are reduced. It’s a double whammy: The COLA itself probably won’t be enough to account for the blow bank accounts have taken from inflation, and an increase in monthly benefits could cut off access to other programs.

Consider a situation where you start taking Social Security benefits early, at age 62. Since you don’t qualify for Medicare until age 65, you can rest assured that Medicaid will fill those gaps. If the COLA hike somehow pushes you over the eligibility limit (which varies by state), that could leave a gap in health insurance at a time when you’re likely to need it most.

A COLA increase isn’t bad in any way, but it’s important to see the full picture so we can start resolving such situations, however that may be.

The Valley Voice
The Valley Voice
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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