It looks like there will be at least a silver lining to soaring inflation.
Seniors will benefit from a nice increase next year.
The roughly 70 million people — retirees, people with disabilities and others — who rely on Social Security could receive an 8.6% cost-of-living adjustment next year, according to an estimate from Mary Johnson, policy analyst for the Senior Citizen League, an advocacy group.
For the average retiree who received a monthly check for $1,657 this year, the hike would mean an additional $142.50 per month in 2023, bringing the typical payment to $1,800.
“It will be a lifesaver,” Johnson said. “That means they can buy an extra week’s worth of groceries. They will be able to afford to heat their home for the next month. People will be able to pay their electricity bill.
Of course, a healthy increase in COLA would simply help retirees keep pace with soaring inflation. The consumer price index jumped 8.3% in April, moving slightly away from 40-year highs for the first time in months, but remaining elevated. This means that the 5.9% increase in Social Security payments this year is well below the increase in costs faced by the elderly, the disabled and other recipients.
“It still wasn’t enough,” Johnson says.
The Social Security Administration set the 2022 COLA last October, after consumer prices began to rise sharply but before the historic rise in recent months that was intensified by Russia’s war in Ukraine.
Forty-four percent of seniors surveyed by his group rely on food stamps, food pantries and other social services, a share that has doubled since October, Johnson said.
“Some of them are in dire straits,” she said.
Retirees were already struggling to meet rising expenses. By March 2021, Social Security recipients had lost 30% of their purchasing power since 2000 because COLAS had increased by about half the cost of goods and services typically purchased by retirees, according to the league.
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By March 2022, that purchasing power gap had widened to 40%, the largest such decline recorded by Johnson.
SSA bases its cost-of-living adjustment on average annual increases in the consumer price index for urban wage and office workers, or CPI-W, from July to September. The CPI-W largely mirrors the Broad CPI the Labor Department releases each month, but differs slightly. Last month, while the CPI rose 8.3%, the CPI-W rose 8.9%.
Inflation should gradually ease this year as supply chain bottlenecks improve. So the actual COLA, which will be set in October, could be slightly lower than Johnson’s projections. Barclays estimates that annual inflation will reach around 7.7% by the summer.
Johnson complained that the basket of goods that determines the CPI-W does not reflect the spending habits of seniors who buy less gasoline, electronics and other goods that make up a large chunk of spending young workers. Seniors are instead spending more on food, health care costs and other items that have seen steep price increases during the pandemic.
Johnson called on the SSA to base its COLA on a proposed index for older people called CPI-E that would place more weight on health, food and other expenditures.