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New government inflation data shows that the measure used to calculate Social Security’s annual cost-of-living adjustments rose 6.3% over the past 12 months as of December.
That’s with COLA starting to run 8.7% this year to more than 65 million Social Security beneficiaries this month.
That new data suggests Social Security beneficiaries will get $38.70 back after months of grappling with record high inflation, according to a new report from the Senior Citizens Association.
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Consumer prices rose 6.5% year over year as of December, according to headline CPI data released Thursday. The Consumer Price Index for urban wage earners and clerical workers, or CPI-W, which is used to calculate Social Security’s annual COLA, rose 6.3%.
Average Social Security benefits have fallen below inflation by about $1,054 from the start of the pandemic through 2022, according to new analysis from the nonpartisan senior group. That excludes Medicare Part B premiums, which are usually deducted directly from your Social Security benefit checks.
“It will be very difficult for people to recover.”
So will retirees who rely on Social Security for income finally catch up in 2023 after inflation soars?
The answer to that question remains uncertain, according to Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League.
How much beneficiaries can catch up depends mostly on lower inflation.
However, if inflation drops too low, that could lead to fewer – or even no – benefits for COLA in 2024, which will also make it difficult to recover, according to Johnson.
“It’s going to be very difficult for people to recover, if they recover at all,” Johnson said.
In 2020, the 1.6% growth in inflation rates (COLA) kept pace with inflation. Average benefits that year ended up being about $53 before deductions for Medicare Part B.
However, in 2021, with 1.3% COLA, the average accrual came in at $612, or $51 per month.
In 2022, a 5.9 percent COLA has helped curb the shortfall, yet average benefits are still lagging by $495, or $41.25 per month.
This predicament has made it all the more 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 effects of inflation, not only on your Social Security benefits, but especially on retirement benefits that are not protected from inflation,” Johnson said.
8.7% COLA ‘probably not a real increase’
The 8.7% COLA may not significantly increase the purchasing power of recipients, since daily costs are still high, according to Joe Elsasser, founder and president of Covisum, a Social Security claim software company.
“Although it may seem like an increase, it is most likely not a real increase,” Alzomar said.
The Social Security Administration uses a measure called the Consumer Price Index for urban wage earners and clerical workers, or CPI-W, to calculate the COLA each year.
The annual cost of living is based on the annual percentage increase in the Consumer Price Index – W for the third quarter. If no increase occurs, there will be no COLA.
The graph above shows which costs have risen the most, based on CPI-W data through December. To be sure, some advocates have argued that other measures may better reflect the costs faced by retirees, such as the Consumer Price Index for Seniors, or CPI-E, and thus may be a better measure of adjusting the annual cost of living.