Social Security COLAs have underperformed inflation by $1,054 since the pandemic began

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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.

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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.

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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.

Consumer prices fell 0.1% in December as forecast

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 8.7% COLA is “probably not a real increase”

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

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