Anticipate a huge increase in social security in 2023? Here’s Why That’s Really Not a Good Thing | Personal finance
Will senior citizens be in line for their biggest Social Security increase in decades next year? It seems likely.
In June, the Consumer Price Index (CPI) rose 9.1% on an annual basis, marking the index’s largest increase in about 40 years. Now, Social Security Cost of Living Adjustments, or COLAs, are actually based on third-quarter inflation data from the CPI-W, which is the consumer price index for wage earners. city dwellers and office workers. And that’s not data we’re aware of yet (in July and all).
Still, it’s fair to assume that Social Security benefits will increase significantly in 2023. And some estimates call for a 10.5% increase, which would far exceed the 5.9% COLA seniors received at the start of 2022.
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But while some Social Security recipients may be looking forward to a big COLA next year, the reality is that a giant raise really isn’t a good thing. The reason? It’s unlikely to actually help seniors get ahead financially.
Why a Big COLA Isn’t a Reason to Celebrate
When social security benefits increase dramatically, it is only because high levels of inflation allow it. But that means that at best, a large COLA will allow seniors to maintain their purchasing power in light of inflation, not earn more.
And remember, this is the best case scenario. Earlier this year, many Social Security seniors thought they would be sitting well following a 5.9% increase. But as we can see, the inflation rate has held well above 5.9% in recent months. This means that seniors have actually lost their purchasing power this year.
But that’s not the only reason seniors shouldn’t get too excited about a big Social Security COLA. The other reason is that if Medicare costs go up a lot next year, they’ll eat away at that COLA even more.
In 2022, the standard Medicare Part B premium is $170.10. In 2021, it was $148.50. That $21.60 monthly jump took away some of this year’s COLA, and there’s no reason to assume the same won’t happen next year.
So while seniors can expect a generous COLA for 2023, they shouldn’t expect their standard of living to improve as a result. Those looking for more financial leeway will likely need to take matters into their own hands by cutting back on expenses or considering part-time work.
The good news about the latter is that the gig economy has grown and become increasingly flexible. And so, accepting a part-time job could mean finding work remotely or with a very manageable schedule.
Take the next COLA ad with a grain of reality
Social Security COLAs are usually announced during the first half of October. Until then, seniors can only guess at the increase heading their way. But they also need to be realistic about what this increase might actually do for them.
It is certainly a good thing that Social Security benefits are designed to keep pace with inflation. But it’s also important to recognize that they often fail to do so.
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