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Social Security recipients may see cost-of-living adjustments to their checks next year like never before – potentially a double-digit hike if inflation continues at its current pace, experts say.
The U.S. inflation rate hit a 41-year record of 9.1%, the latest Consumer Price Index data from June show, and Americans are feeling it when they buy gas and groceries. CPI also affects Social Security COLAs, which means beneficiaries will also see an impact – though for the better.
The COLA for 2023 could be 10.5%, said Mary Johnson, a Social Security policy analyst at the Senior Citizens League who tracks CPI and COLA data. If inflation continues to jump higher, the COLA may be as much as 11.4%, and if it runs cooler than the recent average, it could be 9.8%, she said.
“We are experiencing patterns we haven’t seen in 40 years,” she said.
Recipients are used to relatively minimal COLAs for Social Security. The average has hovered under 2% for many years, though it did spike to 5.9% in 2021. The last time it was in the double digits was 1981, when it hit 11.2%, according to the Social Security Administration.
For Social Security beneficiaries who receive the average monthly retiree benefit of $1,668, a 10.5% cost-of-living adjustment would provide an additional $175.10 every month, Johnson said.
Any increase would be welcome given the concerns around rising inflation, but Americans should continue to watch their finances when spending on everyday expenses, even with this hike. The cost of groceries have jumped 12% in the last year, according to the consumer-price index – the price of eggs has increased 32.2%, chicken 17.4% and milk 15.9%.
The Social Security COLA is linked to the CPI for urban workers – not older Americans – which means it tracks the average cost of goods and services of younger, working individuals. The CPI-E, which is linked to the spending of older Americans, focuses more on healthcare costs, including Medicare Part B premiums. The premium, which is automatically deducted from Social Security benefits, had one of its highest increases in history in 2022 – at 14.5% – but the rate hike for next year has not yet been announced.
Retirees will have to be strategic with their COLAs, as well, especially if they do not have inflation-protected retirement savings. If along with Social Security checks older Americans rely on retirement accounts, they may have to withdraw more money to make up for the rising prices in groceries, utilities and other expenses, which could push them in a higher tax bracket. For those with little to no assets outside Social Security, they should be cautious before taking on more credit card debt and doing their best to budget while inflation runs hot, Johnson said.
