Millions of retirees live on a fixed income provided by Social Security. With so little outside savings, the fact that Social Security makes annual cost-of-living adjustments is important, because it allows the purchasing power of program recipients’ checks to remain constant even under conditions of high inflation.
In January, Social Security recipients will receive an increase in the size of their monthly payments, as the COLA for 2023 takes effect. Below, we’ll see how big of a boost retirees can expect Social Security and whether it will be able to cover the higher costs they face throughout 2022.
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What typical Americans get from Social Security
When you look at the average benefits for Social Security over the years, you’ll notice that they’ve been rising steadily. That is due to several factors, including not only COLA but also the fact that the benefit formula changes every year to incorporate changes in work history and other factors.
The problem is, though, you can’t count on that increase to be consistent from year to year. As you can see below, there were several years in the past decade where monthly check increases were minimal. But in 2023, program participants can expect a pretty big benefit, with the average amount increasing by $170 from the start of 2022.
Average Social Security Benefits for Retiring Workers
The reason for this is quite simple. Most of the 10.3% increase on average from 2022 to 2023 comes from the 8.7% COLA that is scheduled to take effect early next year. The rest of the increase is the result of an increase in average income over time, which has the effect of gradually increasing the amount of benefits for American citizens.
Why the challenges faced by the elderly are far from over
As nice as it is to have some extra money in your pocket, no one really enjoys an increase in Social Security benefits. That’s because people will have to pay higher prices that lead to that big COLA through 2022, so the boost will only help seniors get ahead of the costs they’ve had to cover themselves up until now.
The number shows exactly what the elderly are facing today. Using an experimental measure that focuses on what Americans pay for a mix of goods and services, the Bureau of Labor Statistics said earlier this month that the CPI-E index rose 7.6% over the past 12 months. That’s the highest level of annual profit since the government agency began measuring this research-based measure back in 1982.
One silver lining, though, is that most seniors will get some good news on the Medicare front. The rare drop in monthly premiums for Medicare Part B medical coverage should add a few extra dollars to the monthly check.
Further pain ahead
Even with bigger checks to help older Americans, many expect inflation to keep rising into 2023, and that could put more pressure on seniors’ wallets. Any further inflation between now and next year won’t be factored into Social Security checks until 2024.
The fact that Social Security benefits grow over time is critical to a retiree’s financial health. But instead of being a boondoggle for the nation’s elderly, all the increases actually help them try to keep the inevitable impact of inflation on their purchasing power.
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