Why October is a Crucial Month for Seniors on Social Security | Smart Change: Personal Finances
Millions of retirees depend on social security as a primary source of income. That’s perhaps especially true these days, given the way inflation is wreaking havoc on seniors’ budgets.
Meanwhile, each year, Social Security undergoes its share of changes, some of which can benefit seniors. And such a change, which is usually announced in October, could be essential to the financial stability of seniors by 2023.
A big announcement that seniors are eagerly awaiting
Each year, Social Security benefits are subject to a cost of living adjustment, or COLA, the purpose of which is to help seniors maintain their purchasing power in the face of inflation. This year, Social Security benefits have increased by 5.9% in response to inflation levels at the end of 2021. But given that the cost of living has increased further in 2022, it is fair to assume that the Next year’s COLA will be even more substantial.
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However, seniors will have to wait until October to find out what their 2023 COLA will look like. Why?
This COLA is based on data from the third quarter of the Consumer Price Index for Urban Wage and Clerical Workers (CPI-W). The CPI-W measures year-to-year changes in a number of key goods and services. Since COLAs are intended to help seniors keep up with inflation, it makes sense that they would be pegged directly to an index that measures just that.
Of course, the problem with the CPI-W is that it does not necessarily reflect the costs specific to seniors. The price of gasoline, for example, is a big driver of movement within the CPI-W, but it’s something retirees may not be spending as much money on as workers because they don’t. have no job to go to. That’s why many proponents have proposed changing the way Social Security COLAs are calculated and using a more senior-specific index to land on those numbers.
But for now, the CPI-W is the tool of choice for determining COLAs, and the data derived from it during the third quarter of the year indicates how next year’s COLA will be established. And since that data won’t be available until October, seniors will have to wait a bit longer to see what kind of raise they’ll get in 2023.
Should seniors expect a big COLA?
Many Social Security recipients are hoping for a giant COLA in 2023. But while that’s understandable, big COLAs aren’t necessarily a good thing because they signal that the cost of living has gotten out of hand.
If seniors end up with a massive increase in their benefits in 2023, the best this increase can do is help them keep up with inflation. But that won’t help them surpass it or gain noticeable purchasing power. That’s why it’s always better to have sources of income outside of Social Security.
Some elders have savings to exploit or pensions that pay them regularly. But those who don’t could struggle to make ends meet in the coming year – even if the 2023 COLA is by far the biggest in decades.
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