Over the last few years, the price of almost everything has gone up. Prices have often skyrocketed. This is a particular problem for retirees living on a fixed income.
So when Social Security announced the 2023 Cost of Living Adjustment (COLA) of 8.7%, seniors across the country breathed a sigh of relief. After all, this was his biggest profit increase in over 40 years.
But is an 8.7% Social Security COLA enough? Here’s how we’ve fared this year.
feelings of retirees
Retirees don’t seem to feel that the big Social Security COLA is enough. At least, according to a study by the Senior Citizens League (TSCL) earlier this year.
In that survey, 54% of older consumers did not believe the Social Security COLA of 8.7% would be able to meet the rising costs in 2023. They are catching up from the effects of recent inflation.
Granted, these findings were released in February, so it’s too early to really know what the rest of the year will hold for retirees. However, the senior citizen seems to have had concerns about 2023 based on past experience.
More than 50% of survey respondents said their household expenses increased more last year than the 8.7% COLA that went into effect this year. That her COLA amount was calculated using Q3 2022 inflation rates.
How COLA Has Helped So Far
The Social Security Administration uses the Urban Wage and Office Workers (CPI-W) Consumer Price Index to determine the annual COLA. Here’s how CPI-W increased year-over-year in the first three months of 2023.
Based on inflation levels so far this year, COLA should help many retirees cope with rising costs. None of the CPI-W year-on-year growth rates in the first three months of 2023 exceeded the 8.7% COLA. Inflation also appears to be moderating.
There is some other data that potentially supports the notion that big social security hikes are helping older people stay ahead of inflation. March, bank of america Older Americans report faster spending growth than other age groups. BofA also found evidence in the data that households with Social Security benefits spend more than those without.
The financial services giant concluded that an 8.7% COLA was the likely factor behind this significant increase in spending. However, it should also be noted that some of the increase in spending among seniors in the US may be the result of delayed spending by seniors during the pandemic.
Too little, too late?
At least so far this year, the Social Security COLA appears to be sufficient to offset the increased costs incurred in the first few months of 2023. But there is still reason to believe that the 8.7% adjustment was too little and too late.
TSCL policy analyst Mary Johnson calculated the increase in Social Security benefits needed to meet inflation from January 2020 to December 2022. She found that the actual benefits (including her COLA received) averaged about $1,054 less than required.
Retirees shouldn’t get too used to massive annual benefits increases. Based on current inflation trends, her COLA in 2024 is likely to be much smaller than the adjustments it has undergone over the past few years.
Bank of America is an advertising partner of The Ascent by The Motley Fool. Keith Speights holds a position at Bank of America. The Motley Fool has positions in and recommends Bank of America. The Motley Fool’s U.S. headquarters has a disclosure policy.