The 2023 cost of living adjustment (COLA) for Social Security beneficiaries is on pace for another huge increase, based on an admittedly very preliminary estimate from The Senior Citizens League.
The U.S. Bureau of Labor Statistics reported Thursday that the Consumer Price Index for All Urban Consumers (CPI-U) has risen 7.9% over the past year, which is the largest increase since January of 1982, and the CPI for Urban Wage Earners and Clerical Workers (CPI-W) increased 8.6% over the last 12 months.
“It is still early yet, but based on CPI-W, the same consumer price index that the government uses to calculate the COLA, it looks like we are headed for a 7.6% COLA,” The Senior Citizens League’s Social Security and Medicare policy analyst Mary Johnson told 401k Specialist on Friday.
“Actual inflation is higher than that right now. From February 2021 to February 2022 inflation is 8.6%,” Johnson continued, citing the CPI-W data. “That suggests the COLA could be even higher than what we project. However the rate of inflation could slow as well.”
Were it to hold (admittedly a big “if” this early in the year), a 7.6% 2023 COLA would far eclipse the 5.9% COLA boost Social Security beneficiaries are receiving in 2022—the highest Social Security inflation adjustment in 40 years. The 2021 COLA was just 1.3%.
If (or when) the Federal Reserve raises interest rates—expected to happen multiple times this year—there is a chance it could decrease the COLA estimate. But don’t count on it, Johnson said.
“Under ordinary circumstances we could perhaps expect a slowing in the rate of inflation at the very least. However, the conflict in the Ukraine will create additional inflationary factors that have not even shown up yet in recent CPI data through February,” Johnson said. “That conflict is causing steep spikes in gas and oil prices, and since Ukraine is a major producer of wheat and corn I anticipate it will create shortages in those crucial food supplies which would further drive up food costs.”
The Fed will not be able to do much about this, she added.
The official COLA for 2023 will not be determined by the Social Security Administration until October.
2022 COLA not keeping pace with inflation
The 2022 COLA increased the average monthly retirement benefit of $1,564 to roughly $1,656, a bump of about $92. As of March, the benefit would need to be $1,698.50 to keep up with an 8.6% year over year increase in the CPI-W as of February. To date, there is a total $107.90 shortfall in benefits for the average retiree, based on TSCL’s calculations.
The following table compiled by TSCL illustrates how this year’s 5.9% COLA is already falling short.
Survey paints grim picture
An online survey conducted by TSCL from mid-January through February 2022 of more than 2,700 respondents paints a grim picture for many retirees, particularly those who have insufficient or no savings.
• 45% of survey participants report that they have no savings.
• 20% report that they have depleted a savings or retirement account over the past year.
• 49% have spent emergency savings over the past year.
• 43% are carrying debt on consumer credit cards longer than 90 days.
Johnson said TSCL, a Washington D.C.-based non-partisan senior advocacy organization with more than one million supporters, is urging its members to get help reducing the balances on their credit cards in view of the cost of rising interest rates.
“The most shocking thing we learned was that 47% of our survey participants reported that they had visited food pantries or applied for SNAP benefits for the past year,” Johnson said. “Just three months ago when we surveyed on this same question in October, 22% said they had visited food pantries or applied for SNAP benefits—the number had more than doubled.”
SEE ALSO:
• It’s Official: 2022 Social Security COLA is Highest in 40 Years
• ‘Exploding’ Inflation Stressing Seniors Hampered by Tiny Social Security COLA
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
