Senior citizens on Social Security got their biggest raise in four decades this year. Retirees received a 5.9% increase in their Social Security check in 2022, resulting in larger monthly payments for millions.
While this seems hefty in comparison to recent years -- in 2021, retirees got just a 1.3% bump -- older Americans could be in line for an even bigger increase next year. But this may actually be very bad news and isn't something that elderly people living on a fixed income should hope for.
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Seniors may get a huge Social Security boost next year
The Senior Citizens League has provided some details on the benefits increase the organization believes retirees could see next year. This powerful advocacy group for older Americans reported that early data from the Bureau of Labor Statistics indicates Social Security recipients could be in line for a 6.2% raise in 2023.
"The estimate is significant because the COLA is based on the average of the July, August and September CPI data," Mary Johnson, a Social Security policy analyst for The Senior Citizens League, said in a press release. "With one third of the data needed to calculate the COLA already in, it increasingly appears that the COLA for 2022 will be the highest paid since 1983 when it was 7.4%."
The Senior Citizens League made this estimation based on the fact that Social Security's periodic Cost of Living Adjustment is determined based on changes to prices as measured by a specific BLS index.
COLAs are intended to help ensure Social Security benefits keep pace with inflation, rather than remaining stagnant and leaving seniors with less buying power as the price of goods and services increases. BLS data for one of the three key months used to calculate Social Security increases shows that inflation is near record highs, and thus the COLA is likely to need to be a substantial upward adjustment to ensure retirees don't lose ground.
Why is a big raise bad news for seniors?
Getting 6.2% more money each month may sound good, but there are actually two reasons why these projections of a large benefit increase are really bad news for older Americans.
First and foremost, the fact that inflation is surging means that retirees likely received too small a raise in 2022. Since prices have already gone up in excess of the 5.9% benefits increase seniors started receiving in January of this year, retirees have already fallen behind. The checks they'll get all year won't buy as much as before the price of goods and services started going up rapidly -- even though each payment is higher than it was in 2021.
Second, the Senior Citizens League's estimate suggests the organization clearly believes inflation will continue to be a problem going forward -- otherwise, they'd be projecting a smaller benefits increase. And inflation hits retirees really hard, because not only does it affect how far Social Security goes, but it also means their retirement savings won't be worth as much in real terms.
Since retirees tend to invest conservatively, it's less likely the returns they earn will be enough to preserve the value of their savings relative to rising prices. Retirees also must maintain a safe withdrawal rate to ensure their money doesn't run dry. So with the income they take from investment accounts not going as far, they'll need to either make budget cuts or take more money out and risk their future security.
Seniors should watch the BLS data carefully over the next several months. If it continues to show prices rising rapidly, it will be important to start looking for spending cuts to make ASAP to preserve their assets -- despite the fact that they'll be on track for a bigger raise in 2023.
