Social Security Recipients Could Soon See Their Largest Raise in Decades

Daily Trade Alert ^ | 09/11/2022 | Maurie Backman of Motley Fool

[SeekAndFind]

But is that actually a good thing?

Retiring on Social Security alone is a dangerous thing. That’s because those benefits will only replace about 40% of the typical worker’s pre-retirement income, and most seniors need about twice as much money to maintain a comfortable lifestyle.

But the reality is that a lot of people do end up retiring solely or largely on Social Security. And it’s those same people who are apt to be the most impacted by Social Security raises.

Each year, benefits are subject to a cost-of-living adjustment, or COLA, based on inflation levels. Since inflation has been sky-high this year, benefits will likely increase substantially going into 2023. But whether that’s actually a good thing is really up for debate.

A mixed bag
This year, Social Security recipients saw their benefits increase by 5.9%. The last time benefits rose more than 5.9% was back in the early 1980s. As such, next year’s raise could be the largest one seniors get in 40 years.

It’s too soon to say exactly what 2023’s COLA will look like. That’s because that raise will hinge on third-quarter data from the consumer price index for urban wage earners and clerical workers (CPI-W). Since it’s still September, a full set of third-quarter data isn’t available yet — and it won’t be until almost mid-October, which is when the Social Security Administration will announce next year’s COLA.

But based on the data so far, it’s fair to assume that next year’s COLA will well outpace the 5.9% seniors got this year. Estimates have ranged from roughly 8.5% to almost 11%, so even if the final number falls somewhere in the middle, you can bank on it being large.

But that’s not necessarily a good thing. After all, the only reason 2023’s COLA will be so high is that inflation is high. And because the CPI-W doesn’t necessarily account for the expenses that are the most applicable to seniors, there’s a good chance Social Security beneficiaries will end up losing buying power in 2023, even if their monthly payments end up increasing a lot.

Don’t rely too heavily on Social Security
Inflation has been crushing consumers of all age groups — but it’s dealt a particularly tough blow to retirees on a fixed income. For current seniors who get most or all of their income from Social Security, there may not be much to do about rampant inflation other than try to adjust spending habits and look into part-time work.

But for current workers looking to avoid a similar fate in retirement, the solution boils down to saving aggressively to have extra income available later in life. Socking away $300 a month in a retirement plan over a 30-year period could result in a nest egg worth about $408,000 if that money is invested at an average annual 8% return, which is a bit below the stock market’s average.

Seniors today who have savings to tap are probably faring much better than those who are limited to a Social Security paycheck. And that will likely continue to hold true regardless of what 2023’s COLA amounts to.

[SeekAndFind]

IMHO, This is Not cause for celebration — just relief

If inflation stays flat in August and September, then the resulting average inflation reading for the three summer months in 2022 would be 8.9% higher than the corresponding average in 2021. It would take 1% monthly increases in both August and September to get the COLA for 2023 close to the 10% mark, and increases of that size just don’t look particularly probable.

That said, Social Security recipients don’t have to worry about seeing their projected COLA fall much further. Even if the Consumer Price Index fell 1% month-over-month in August and September, it would still leave the summer average up 7.8% from 2021 levels. That would still be enough to make the 2023 COLA the biggest in decades.

The key point to remember is that Social Security’s COLA isn’t a raise in the traditional sense. It’s meant only to help recipients keep up with the pace of inflation and avoid a loss of purchasing power. So regardless of whether it comes in around 9%, higher, or lower, it will only reflect the fact that it’s costing more for retirees to buy the things they need.

Nevertheless, for those who rely largely on Social Security for the bulk of their income in retirement, getting a COLA will be a critical element of their financial survival. Having to wait until January isn’t ideal, but when higher checks come, they’ll provide a valuable lifeline for those struggling to make ends meet.

[TomGuy]

The Medicare premium usually eats up a good chunk of the SS increase. 2022 had a big jump.

The 2023 Medicare premium MIGHT even be lowered, because the 2022 increase was primarily due to an expensive cancer drug cost.

[SamAdams76]

On the other hand, most people's IRA/401k's - which are intended to replace the other 60% of your income in retirement - are down 15-20% this year.

Those planning to retire shortly might need to delay a few more years.

[Paladin2]

I’ll bet the essentially mandated Medicare charges wipe it out, again.

[frank ballenger]

Wildly increased costs on things older citizen buy. No way to work fulltime jobs and overtime for many due to disabilities.

So if skateboards, gamer chairs, video games and starter houses go down it doesn’t help with insulin, expensive prescriptions, office visits to doctors and specialists and grocery necessities which are going way up.

[lightman]

Unlikely.

The COVID premiums paid for [mis]diagonses and mistreatements aka ventilators have been cut off.

The Biomedical-Pharmaceutical complex is still VERY hungry!

[dragnet2]

Yep, they give a tiny raise to SS folk then they’ll raise Medicare costs. Same old story.

[TomGuy]

there’s a good chance Social Security beneficiaries will end up losing buying power in 2023, even if their monthly payments end up increasing a lot.

Well, duh! they (we) will DEFINITELY lose buying power either way because inflation is going to be around for the foreseeable future. Those 1/2 to 3/4 point FED interest increases are going to take a year or more to even show much of an impact on inflation. The FED was too late to start the increases and too little when they did.

[aquila48]

Does that mean social security will go broke sooner?

[mountainfolk]

Every time congress gives themselves a raise, Social Security should be given the same percentage raise for all recipients. The SS raise should be tied to all govt raises.

[TomGuy]

Does that mean social security will go broke sooner?

Politicians have been singing that tune for decades. Every couple of years they renew the 'social security is going broke' sob story. Then, when it becomes absolutely politically necessary, Congress appropriates the funds. Social security is saved.

A couple of years later, same ole song and dance.

[flamberge]

Those 1/2 to 3/4 point FED interest increases are going to take a year or more to even show much of an impact on inflation.

Those interest rate increases will have no effect on inflation. Doesn't anybody remember the 70's and "stagflation".

The rise in interest rates is merely the central bankers protecting themselves. Because they can.

We are funding a very expensive war in the Ukraine on "borrowed" money, which is basically the same thing as "money created out of nothing" by the central banking system. The US Government spends about twice as much as it collects in taxes and effectively prints the rest. That is what drives inflation.

We have been able to export that and limit the effects on our economy because the US dollar has been the world's reserve currency for most of our lifetimes. That is not sure thing anymore. The main advantage we have is that other countries are doing an even worse job of managing their money supply.

The whole arrangement is coming apart now. The winners will be factions that can get control of productive people and protect them from the other more predatory factions. I do not believe that can be done any longer by clever manipulations of the financial system. And all the factions are predatory now.

[CFW]

It might be a little help for those on SS but the Medicare costs will go up and take most of the increase away. I’d prefer that prices of everything return to pre-Biden levels.

[Salamander]

There goes that $8 “raise”.

[Maris Crane]

Don’t care of it is 5K increase.

I do NOT WANT it from Pedo Joe.

[Paladin2]

This analysis doesn’t include evaluation of the effects of a wide variety of current tax codes on individual situations, much less any future Manchin Tax changes..

[Do you have any influence on our friends “South of the Border”?]

[bitt]

p

[Rurudyne]

Sad the 10th Amendment isn’t honored instead....

[JimRed]

Biden buying senior voters.