Recipients of Social Security may receive the biggest cost-of-living adjustment (COLA) in 40 years causing check recipients to receive a nice “raise” next year.
Last Tuesday, the Senior Citizens League, a group that lobbies for seniors, released inflation figures for August, noting the diminishing buying power of retired Americans.
American’s inflation is at an 8.3% annual rate as of August 2022. The current inflation rate may allow those receiving Social Security benefits to receive a sizable cost-of-living adjustment.
The Senior Citizens League expects the highest cost of living adjustment in more than 40 years, since 1982 when the Security Administration estimated a 7.4 percent increase in the cost-of-living adjustment.
In a letter sent last Tuesday, Senior Citizen League policy analyst Mary Johnson said recipients could see an 8.7% COLA spike next year.
“After evaluating the August consumer price data, what I’m finding clearly illustrates the weakness in our inflation adjustment system for Social Security. My COLA estimate has dropped to 8.7% almost a full percentage point from the 9.6% that I forecast last month”
The Social Security benefits increase could bring more than 70 million American’s an extra $1,800, on average, in 2023, an increase of $144.10. The recipient group includes 52.3 million people who are older than 65, a group of survivors of beneficiaries, and low-income people receiving disability benefits and Supplemental Security Income.
Social Security Increase Calculations
Annual adjustments are calculated based on average changes within specific inflation measures by Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from last year’s third quarter to this year’s third quarter. The calculation formula used is one of the broadest government measures of inflation.
The Social Security Administration will announce the final figure on October 13, after the release of September inflation data, and will decide on the increase for 2023 after inflation data is released.
In comparison, the adjustment for 2022 was 5.9%.
The Social Security Program
USA.gov describes the Social Security program as:
“Social Security provides you with a source of income when you retire or if you can’t work due to a disability. It can also support your legal dependents (spouse, children, or parents) with benefits in the event of your death.
Social Security is a program run by the federal government. The program works by using taxes paid into a trust fund to provide benefits to people who are eligible.”
According to the Motley Fool, claiming Social Security at 62 may lower benefit payouts by as much as 30% from the primary insurance amount (PIA), which is the full benefit amount you’d receive at age 67. The full retirement age (FRA) is 67 for those born after 1960 or between 66 and 67 for those born between 1943 and 1959.
Higher Tax Bracket?
Although many Americans on social security who receive the payout increase will be happy for any extra money in the bank, recipients could be pushed into higher tax brackets and have to pay taxes on their benefits.