On paper, inflation could result in a nice increase.
There’s a reason why seniors who rely on Social Security for the majority or all of their income struggle financially. These benefits frequently fail to keep pace with inflation.
This year, Social Security recipients received the largest cost-of-living adjustment (COLA) in decades, a 5.9 percent increase that went into effect in January. What’s the deal with that massive raise? Inflation is skyrocketing.
Meanwhile, inflation has accelerated in recent months. As a result, the nonpartisan Senior Citizens League recently estimated that seniors could be in line for an 8.6 percent COLA in 2023.
Of course, because COLA data is based on third-quarter inflation data, the aforementioned figure is purely speculative at this point. In any case, it is reasonable to anticipate that Social Security will receive a sizable boost in 2023, potentially dwarfing this year’s 5.9 percent increase.
At first glance, this may appear to be a good thing. However, this is not the case.
Seniors are unlikely to increase their purchasing power.
The entire purpose of Social Security COLAs is to assist beneficiaries in maintaining their purchasing power as living costs rise. Even if Social Security is significantly increased for 2023, seniors are unlikely to benefit.
In the best-case scenario, Social Security will provide a generous enough raise to help seniors keep up with inflation. But, more often than not, even a generous raise will fall short.
That has undoubtedly been the case this year. While a 5.9 percent COLA seemed generous heading into 2022, inflation has risen far more on an annual basis in recent months, leaving beneficiaries scrambling to cover their bills once more. And there’s no reason to believe it won’t happen again in 2023.
A critical lesson for those who have not yet retired
Unfortunately, current Social Security recipients may be too late to address the problem of rampant inflation. Many seniors are unable to work because of health issues or concerns. For some, a lack of current skills may be a barrier to obtaining part-time work.
Furthermore, today’s seniors cannot go back in time and create solid nest eggs to last them through retirement. However, today’s workers can.
If you’re still a few years away from retirement and want to avoid the financial crisis that so many seniors on Social Security are experiencing right now, your best bet is to start saving now so you’re less reliant on those benefits later. If you save $300 per month for the next 40 years, you’ll have a nest egg worth around $933,000, assuming an annual 8 percent return on your portfolio (a bit lower than the stock market’s average, but a reasonable assumption for a 40-year investing window).
It’s too early to predict the Social Security COLA for next year. Seniors should expect a significant raise in either case. But they shouldn’t expect to have an easier time paying their bills. Unfortunately, the opposite is sometimes true, as is the case today.