Social Security Beneficiaries could receive the biggest increase in the cost of living in decades due to runaway inflation, which has rapidly eroded the purchasing power of American retirees.
A Social Security Administration official estimated benefits could see a cost-of-living adjustment as high as 8%, or an increase of about $132.64 per month, in early 2023. That would bring the average check at around $1,790. If Social Security recipients saw an 8% increase in their monthly checks next year, it would mark the largest annual adjustment since 1981, when recipients saw an 11.2% increase.
The annual change in Social Security is calculated based on the Consumer Price Index for Urban Salaried and Clerical Workers, or CPI-W, which jumped 9.4% during the last year.
“Looking at the CPI-W trends we’re seeing so far this year, it’s likely we’ll have a COLA closer to 8% than 3.8%,” said actuary Stephen Goss. Chief of the Social Security Administration, in a recent webinar with the Bipartisan Policy Center on Social Security.
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The Social Security Administration will release the final adjustment percentage in October. It will come into force in December.
An 8% increase is “good news for recipients who are currently eligible for benefits,” Goss said. “They will get a relatively large increase in their benefits.”
The estimated figure could still be subject to change and ultimately depends on whether inflation has peaked or will remain near an all-time high. Many economists have warned that prices could be “extremely slow” to come down.
The average benefit in 2022 jumped 5.9%, equivalent to a monthly increase of $92 for the average American retiree, bringing the total amount to $1,657, the Social Security Administration announced last year. But soaring inflation has already eroded the entire increase, according to calculations by the Senior Citizens League.
At the end of April, the total shortfall for an average benefit was $162.60.
Since 2000, Social Security benefits have lost about 30% of their purchasing power due to inadequate adjustments that underestimate inflation and rising health care costs, according to the Senior Citizens League.
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The group pushed Congress to pass legislation that would index the inflation adjustment specifically for seniors, such as the Consumer Price Index for Seniors or CPI-E. This index specifically tracks household spending with people aged 62 and over.