The Social Security Administration has announced a significant increase in Social Security benefits for 2023.
Starting next January, Social Security salaries will reflect an 8.7% Cost of Living Adjustment (COLA). This is well above the modest 1.3% rise given in 2021 and well above last year’s 5.9% rise.
This year’s growth is big. The highest in the last 42 years.
Since 1975, when the COLA was introduced, the highest Social Security COLA was 14.3% in 1980, which was an anomaly. The only other times COLA was above 8% were in 1975 (8%), 1979 (9.9%) and 1981 (11.2%).
The average COLA over the last 47 years is calculated to be 3.7%. Also, the average over the last 10 years is 2.24% for him.
Also, interestingly, there were 3 years (2010, 2011, 2016) where the growth rate was 0%.
An 8.7% increase is big, but is it enough?
This year’s expected COLA will be helpful. However, most of the recent increases have been much more modest. And small annual increases have a cumulative effect. In fact, each inadequate increase affects income for the rest of a retiree’s life.
Also, because of how COLA is calculated (see below), previous increases have not kept up with rising Medicare and other retiree costs. However, it could be different this year, at least when it comes to Medicare.
Good news: According to Mary Johnson of the Senior Citizens League, “Over the past 21 years, COLA has raised Social Security benefits by 55%, while housing costs have risen by almost 118% and health care costs have risen by 145% over the same period. But this month, she said, “seniors are used to Part B premiums hogging COLA. I think we’re in for a pleasant surprise this year.”
Many experts predict a slight increase in Part B Medicare premiums, which are normally deducted from Social Security paychecks. More recently, COLA has often been reduced or eliminated due to rising Part B costs.
Bad news: COLA aims to protect the purchasing power of social security benefits, but consumer price data to July 2021 show that social security benefits account for almost one-third, or 32%, of purchasing power since 2000. I’m losing It can’t even keep up with the 13.5% year-over-year increase in food costs in August.
An 8.7% increase in Social Security isn’t really an increase if prices are rising any further.
Social Security benefits vary greatly depending on when you start receiving benefits and your income level during your working life. On average, however, this surge will increase a retiree’s monthly payments by $146, bringing him to an estimated average of $1,827 in 2023.
This represents an increase in income for the average Social Security recipient of $1,752 in 2023.
A massive increase in social security benefits might seem like good news. However, larger salaries are intended to help retirees cope with inflation. And inflation is not good news for anyone.
We recommend that you keep your retirement plan updated as your financial situation changes. The news may update Social Security benefit figures and inflation forecasts.
If you have already started Social Security, this COLA is important enough that you should update your current or projected Social Security benefits in the NewRetirement Planner.
In light of this news, everyone should evaluate the Social Security COLA, general inflation, rising house prices, and healthcare inflation assumptions in the NewRetirement Planner.
How the Social Security Cost of Living Adjustment (COLA) is calculated
of First Social Security COLA Increase It was 1950. It required congressional action and profits increased by 77%.Two more legislative enactments in the 1950s meant that by the end of this decade he was up to 125% of his original level. Increased. From 1950 to 1975, COLA was increased nine times by a single act of Congress.
In 1973, a law was passed providing for: social security Profits keep pace with inflation, and the first annual COLA increase occurred in 1975. social security law Specifies that the COLA is determined based on increases (decreases are not used) in the consumer price index (CPI-W) for urban wage earners and office workers.
The Social Security Administration uses average CPI-W data for July, August, and September of the previous year and compares it to the same period of the current year. The percent change between the two numbers is the increase in COLA.
Will Social Security’s Cost of Living Adjustment Act (COLA) hurt retirees?
As the name suggests, the CPI-W measures increases in the types of costs that urban workers typically purchase. The problem with using this measure for social security is that retired seniors spend their money quite differently than most workers. is spending money.
To make matters worse, healthcare costs are rising much faster than most other goods and services. According to various indicators, healthcare costs have risen between 3% and 12% annually over the past decade. Older people also spend more of their income on health care than the average worker.
According to the Senior Citizens League, “Subdued growth in Social Security benefits will not only cause ongoing benefit adequacy issues for retirees, but will also lead to higher Part B premiums for many beneficiaries. If COLA isn’t enough to cover it, it also poses a Medicare budget problem.” Part B premium increases have some statutory protections, but about 30% of beneficiaries are unprotected. , Part B premiums could “significantly increase”.
An alternative method to the CPI-W method for calculating the Social Security COLA has been proposed. R-CPI-E About the “Retirement Price Index for Older Americans”. In particular, this method of calculating inflation for people over the age of 62 was mandated by the Older Persons Act 1987, but has never been used to update Social Security COLAs.
How to make sure you have enough retirement income
Social Security is designed to replace part of your retirement income. Living on Social Security alone is almost (but not quite) impossible.
To make sure you have enough retirement income regardless of the 2022 Social Security increase, you need to do four things:
1. Calculate all sources of retirement income
You should consider how you will withdraw or earn from your savings, and whether you have a pension, passive income, or a job after retirement.
2. Estimate retirement benefits
How will your retirement expenses change?
3. Assess inflation
Ronald Reagan said, “Inflation is as violent as robbery, as terrifying as armed robbery, and as deadly as a hitman.” And it’s true. Inflation makes the money you have worthless. This is he one of the reasons why correctly forecasting and calculating inflation is so important to future economic security.
4. Protect yourself from other risks
Inflation isn’t the only unknown that can devastate your retirement finances.You should also prepare for longevity, medical emergencies, natural disasters, and more.
Incorporate social security income projections into retirement planning
Sound complicated? It doesn’t have to be.
The NewRetirement Retirement Planning Calculator is an easy-to-use yet highly detailed tool that will tell you if you have enough retirement income. You can set different levels of spending and income for different stages of retirement.
You can also set your own estimated inflation rate. One for general expenses, another for housing, and medical expenses can also be specified separately. Experiment with different rates for each category to see how they affect your retirement health.