Social Security Payments Should Increase in 2023, but They Will Be Nowhere Near the Largest “Raise” Ever.

Social Security will play a critical part in the financial security of the great majority of working Americans when they retire. Over eighty-four percent of those who have not yet retired expect to rely heavily on Social Security in their old age, according to a recent Gallup poll.

In keeping with the 89 percent of seniors who rely on Social Security income to some extent each month, this is a good fit.

The October cost-of-living adjustment is perhaps the most eagerly anticipated statement of the year for most Americans, given the importance of Social Security income (COLA).

What is Social Security’s cost-of-living adjustment, and how is it calculated?

Think of Social Security’s COLA as a “raise” that is passed down to the program’s more than 65 million participants in most years, without getting too technical. It is important to note that “raise” in quotation marks indicates that this annual payout increase is meant to account for the inflation programme recipients have experienced and is not aimed to help beneficiaries “go ahead.” A rise in the cost of goods and services should lead to an increase in social security payments.

Since 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers has served as Social Security’s inflationary tether (CPI-W). Each of the eight major CPI-W spending categories and hundreds of subcategories has its own percentage weighting in the CPI-W.

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Measurement of price changes for a wide range of goods and services can be done using these weightings while still allowing us to publish a single, simple figure that demonstrates whether inflation or deflation is taking place.

Contrary to popular belief, just three months of CPI-W data from this year and the prior year are used to calculate Socia

l Security’s annual cost-of-living adjustment (COLA). Social Security’s cost-of-living adjustment formula does not take into account the other nine months of the year.

As long as the third quarter’s CPI-W data is greater than the previous year’s third quarter’s CPI-W reading, inflation has occurred and the program’s participants will experience an increase in payments in January. Increases in the CPI-W averaged to the nearest tenth of a percent in the third quarter are used to calculate this increase.

Social Security’s 2023 COLA could be huge (but it’s nowhere close to a record)

This year, Social Security recipients can expect a significant increase in their monthly benefits. An expert from The Senior Citizens League (TSCL), a senior advocacy group, says the program’s COLA might rise as high as 11.4 percent in 2023 if the third quarter inflation continues to rise.

I predict that by December 2022, the average retired worker will receive $1,683 a month in benefits. In January, if the COLA rises by 11.4 percent, the average monthly benefit will rise by over $192. This means that in January 2023, the ordinary retired worker will be able to take home up to $1,875 per month.

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In the context of Social Security’s long history, a 11.4 percent COLA would not even be close to a record-setting figure. This is due to the fact that, prior to 1975, cost-of-living increases were given out at the whim of Congress during special sessions. There were just 11 times between 1940 and 1975 that Congress voted to raise Social Security’s monthly benefits. Most of these gains, on the other hand, involved increases in percentage terms of at least ten percent.

In the month of September of 1950, programme participants experienced the largest percentage increase in their benefits. The Social Security Amendments of 1950 introduced a (drum roll please) 77% cost-of-living adjustment to monthly payouts after beneficiaries went the entire 1940s without an inflationary boost. Nothing short of hyperinflation can ever dethrone this historic and arbitrarily determined COLA.

A historically high COLA isn’t reason to cheer

Even if Social Security recipients are about to get an increase in their monthly benefit that is unprecedented, they are also dealing with a historically high inflationary pressure. This means that rising costs for housing, food, transportation, and medical care will consume a considerable percentage of the rise in Social Security benefits in 2023.

There is also a problem with Social Security’s inflationary tether, which has failed to take into account the rising costs faced by the elderly. The purchasing power of Social Security payments has decreased by an almost incomprehensible 40% since 2000, according to a TSCL research released in May 2022. In other words, in the year 2000, $100 in Social Security benefits could buy the same products and services that you can today only get for $60.

Social Security Benefits Cola 2023

There is a problem with the CPI-official W’s name, which implies that it is geared toward urban wage earners and administrative staff. Working-age Americans without a Social Security benefit make up the majority of this group. The main difference between them and older people is how they spend their money.

As a result, the CPI-W does not adequately reflect the costs of healthcare and housing for the elderly. In the meanwhile, less critical costs like education, clothing, and entertainment are given a higher priority.

No major party in Congress has been ready to budge on this issue, despite the fact that both parties agree that the CPI-W isn’t doing a particularly good job of tracking the inflation that Social Security recipients are dealing with. In other words, Social Security recipients are doomed to lose additional purchasing power over time, no matter how substantial the COLA is in 2023 and beyond.

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