Hobo_018 | E+ | Getty Images
New government inflation data shows that the measure used to calculate Social Security’s annual cost-of-living adjustment rose 6.3% over the trailing 12 months to December.
That’s the case as this year’s 8.7% COLA takes effect this month for more than 65 million Social Security recipients.
related investment news
This new data suggests that Social Security beneficiaries will get $38.70 back after months of grappling with record-high inflation a new report from the Seniors’ Association.
More from Personal Finance:
Here’s the inflation breakdown for December 2022 – in one chart
Americans rely more on credit cards as spending remains high
3 key steps you need to take before tax filing season 2023 begins
Consumer prices rose 6.5% on an annual basis in December, according to CPI data released on Thursday. The consumer price index for city wage earners and office workers, or CPI-W, which is used to calculate Social Security’s annual COLA, rose 6.3%.
Average Social Security benefits lagged inflation by about $1,054 from the start of the pandemic through 2022, according to a new analysis by the bipartisan seniors group. The exception to this is Medicare Part B premiums, which are usually deducted directly from Social Security benefits.
“It will be extremely difficult for people to recover”
So will retirees who depend on Social Security for their income finally catch up in 2023 after record-high inflation?
The answer to that question is still uncertain, according to Mary Johnson, Social Security and Medicare analyst at The Senior Citizens League.
How much the beneficiaries can catch up depends mainly on whether inflation falls.
But if inflation falls significantly, it could result in a much lower — or even none — COLA for benefits in 2024, which Johnson said would also make the recovery more difficult.
“It’s going to be extremely difficult for people to recover, if at all,” Johnson said.
In 2020, a COLA of 1.6% kept pace with inflation. Average benefits this year ended at about $53 before deductions for Medicare Part B.
However, in 2021, the average benefit lagged behind by $612, or $51 per month, at 1.3% COLA.
In 2022, a 5.9% COLA helped contain the deficit, but average benefits still lagged by $495, or $41.25 per month.
The predicament has made it increasingly important for retirees to carefully plan all income streams, not just Social Security.
“It’s a good thing for people planning for retirement to consider and understand the impact of inflation, not just on your Social Security benefits, but particularly on pension benefits that aren’t inflation-protected,” Johnson said.
the According to Joe Elsasser, founder and president of Covisum, a social security claims software company, 8.7% COLA may not significantly increase beneficiaries’ purchasing power because daily costs are still high.
“Although it looks like a raise, it probably isn’t a real raise,” Elsasser said.
The Social Security Administration uses a measurement called the Consumer Price Index for City Wage Earners and Office Workers, or CPI-W, to calculate the COLA each year.
Annual cost of living is based on annual percentage increase in CPI-W for the third quarter. If there is no increase, there is no COLA.
The chart above shows which costs have increased the most based on CPI-W data through December. Certainly, some proponents have argued that other measures might better reflect the costs faced by retirees, such as the Consumer Price Index for the Elderly, or CPI-E, and therefore might be a better benchmark for annual cost-of-living adjustments.
https://www.cnbc.com/2023/01/12/social-security-colas-fell-short-of-inflation-by-1054-since-pandemic-began.html Social Security COLAs have underperformed inflation by $1,054 since the pandemic began