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Early Signs Point To A Higher Social Security Cost-Of-Living Adjustment in 2023

social security cost-of-living adjustment
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EDITOR'S NOTE: 

Social Security beneficiaries may see the largest cost-of-living adjustment (COLA) since 1981. COLA is projected to increase by 8% in 2023, giving beneficiaries a strong boost in their monthly Social Security benefits, hopefully enough to counter the effects of inflation.

 

So, what’s wrong with that? The adjustment “will cost the program tens of billions of dollars, putting further pressure on the program that is already facing insolvency,” according to the non-partisan and non-profit Committee for a Responsible Federal Budget. The key word here is “insolvency.” In short, a nearly-bankrupt program will be facing the added burden of paying out tens of billions.

Thought bubble: Might monetary recklessness and fiscal irresponsibility have anything to do with the program's looming insolvency? And might early investments in sound money assets have helped retirees preserve their purchasing power, even if their allocations were a mere fraction of their total savings?

KEY POINTS
  • Early signs point to an even higher Social Security cost-of-living adjustment for 2023 than for 2022.
  • While that may put more money in retirees' wallets, it could impact the program's funding.
  • Here's what we know about how bigger monthly checks may affect the program's solvency.

Social Security beneficiaries saw the biggest cost-of-living adjustment in about 40 years in 2022, when they received a 5.9% boost to their monthly checks.

Next year, that annual adjustment may even go as high as 8%, according to early estimates. That is despite the fact the annual Social Security trustees report released last week pointed to a 3.8% bump for 2023.

“Looking at the CPI-W trends that we’re seeing so far this year, it is likely we’re going to have a COLA closer to 8% than 3.8%,” Stephen Goss, chief actuary at the Social Security Administration, said during a briefing on the trustees report hosted by the Bipartisan Policy Center last week. CPI-W refers to the Consumer Price Index for Urban Wage Earners and Clerical Workers, a subset of a broader measurement for changes in prices for goods and services.

The 3.8% COLA projection for next year in the trustees report is based on data through mid-February. However, high inflation has persisted since then, pushing the potential increase for next year higher.

“That is actually good news for the beneficiaries who are currently eligible for benefits in this year,” Goss said. “They will get a relatively high increase to their benefit.”

To be sure, the COLA for 2023 may fluctuate before it is formally announced later this year. One key factor to watch: inflation.

Social Security’s annual COLA is determined by comparing the CPI-W data from the third quarter of the current year to the third quarter of the prior year.

Thus, the COLA for 2023 will be influenced by how inflation fares in July, August and September.

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