Will Inflation Wipe Out Social Security’s COLA Update? – Although the origins of Social Security actually go back to the Great Depression, general benefits have only been increased since June 1975 based on the rise in the cost of living as measured by the consumer price index. These are now known as “Cost of Living Adjustments”, or COLA, and the first was based on the increase in the Consumer Price Index for Urban Wage Earners and White-collar Employees (CPI-W) from the second quarter of 1974 to the first quarter of 1975 — driving an eight percent increase in benefits .
A COLA in effect for December of the current year equals the percentage increase (if any) in the CPI-W from the average over the third quarter of the current year to the average over the third quarter of the last year in which a COLA came into effect.
Each year, COLA determines how much benefits will increase — with the highest ever recorded in 1980, when it was a whopping 14.3 percent, followed by 11.2 percent just a year later. However, some years have not even seen an increase at allas noted in 2009 and 2010, as well as most recently in 2015.
Big COLA increase coming?
On October 12, 2021, it was determined that there would be a COLA of 5.9 percent, with the next one currently scheduled for next October. What is striking is that the high inflation of the 70s that led to the annual COLA — and that required a new bill from Congress to increase Social Security benefits.
This year’s high inflationthat rose to 8.5 percent and was the 17th straight month in which inflation has surpassed the Federal Reserve’s 2 percent target of 2 percent remains a serious concern for many Americans — especially those on fixed incomes and who depend on their Social Security benefits.
Given the gravity of the current situation, Social Security retirement benefits are largely expected to see a “monstrous increase” next year — some say perhaps as much as 11 percent.
It is currently on track to 8.9 percent COLA increase for 2023easily surpassing the 5.9 percent set for this year—and, moreover, it would be the biggest adjustment since the long-ago 11.2 percent COLA in 1981. As a result, the typical recipient would $1,900 additional next year.
“A high COLA is eagerly anticipated to address an ongoing benefit shortfall that Social Security beneficiaries are experiencing in 2022 as inflation exceeds their 5.9% COLA,” Mary Johnson, social security policy analyst security and health care at the Senior Citizens League, told CBS News.
It’s still important to note that this is really the silver lining for what are truly gray clouds. It may seem like retirees are getting a huge raise, but it only happens because inflation hit 40-year high in Juneand so the COLA simply increases must be the biggest over the past 40 years to keep up the pace.
Clearly there is no free lunch and some seniors could continue to go hungry if record inflation is not resolved soon.
Peter Suciu, senior editor for 1945, is a Michigan-based writer who: contributed to more than four dozen magazines, newspapers and websites with more than 3,000 pieces published over a twenty-year career in journalism. He writes regularly on military hardware, firearms history, cybersecurity and international affairs. Peter is also a Contributing Writer for Forbes. You can follow him on Twitter: @PeterSuciu.