In 2023, retirees using Social Security are likely to experience something that no senior citizen has experienced in 40 years. The Cost of Living Adjustment (COLA), which is on track to obtain, would bring about the largest benefit increase in more than four decades.
This shift sounds positive to older Americans, but in reality it is not. To understand why, it’s important to know the reason why this change will occur next year.
Retirees can expect a big change in their favor in 2023.
In 2023, retirees are likely to see a huge increase in their monthly checks.
According to the Senior League, seniors may receive an 8.6% increase in benefits next year. This will take effect in January 2023. This means that a retiree who receives an average monthly allowance of $ 1,657 this year would see a payment increase of $ 142.50 per month or $ 1,710 per year.
This would be the largest increase in monthly Social Security benefits since 1981, when Americans received a 11.2% increase. And it far exceeds the increases received by seniors in recent years, which have ranged from 0% in 2016 to 5.9% in 2022.
That’s why this change isn’t good news for seniors
It may seem like great news that seniors are receiving the greatest benefit spike in over four decades. But the reality is that it’s not a good thing for seniors or anyone else.
See, the COLA is calculated each year from the Consumer Price Index, which shows how prices have risen from year to year. In other words, it is based on inflation, so a big increase means a drastic increase in the cost of goods and services. So, while retirees will get more money on paper, they will not enjoy more buying power from larger checks. In fact, their money probably won’t go that far for two key reasons.
The first major problem is that the Social Security increases are not keeping up with the actual spike in spending experienced by older Americans over time, due to the structure of the COLA formula. The scarcity is significant and the Senior League estimates that benefits have lost 40% of their purchasing power since 2000.
The second point is that most older Americans rely on both Social Security and savings to help them make ends meet. And inflation hits savers hard as the purchasing power of seniors invested in funds will also decline as prices rise. Since seniors typically need to invest carefully to avoid undue risk of loss, their returns may not be high enough to avoid losing a significant position when inflation is soaring.
The Social Security Administration has yet to announce a benefit increase for 2023, and as it is based on data from the third quarter of the year (July to September), things may still change. However, all the evidence suggests that inflation will be an ongoing problem in the coming months, so retirees should now begin to prepare for price increases over time that their greater social security controls may not cover.
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