Social Security beneficiaries will get a generous increase in 2023, the highest in over 4 decades. The increase has been made possible The record inflation has affected this section of people the most as they have a fixed income and do not have the physical ability to supplement their income with other sources of income. The relentless increase in inflation has not seen much change as the US moves past the final quarter of 2022. It has led to an increase of 8.7% due to the Cost Of Living Adjustment for 2023.
The Social Security payments recipients continue to struggle as record inflation pushes up prices of products and services and affects everything from gasoline to groceries. They will benefit from the major boost in the monthly benefits in 2023. A substantial COLA increase of 8.7 has been announced by the agency.
This adjustment will represent the biggest increase in over 4 decades. The last time such a major increase was announced was in 1981. So for surviving beneficiaries, it will be the largest ever they have enjoyed. the COLA increase was comparatively way less in 2022 at a measly 5.9%.
People suffering from disabilities that prevent them from working and retired workers and those visually impaired are eligible for the monthly payment given by the SSI (Social Security Administration). The Supplemental Security Income gets increased accordingly through the same Cost of Living Adjustment.
The federal laws contain a detailed description of the way COLA is calculated. A specific formula is used and data is gleaned from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
The CPI average is taken by the SSA each year for July, August, and September, the values are compared to the figures of the corresponding months of the previous year.
The COLA applies to around 70 M Social Security and Supplemental Income beneficiaries but the benefits do not increase with each year. thus the record 5.8% increase seen in 2009 was followed by two years of a flat COLA increase.
The biggest annual COLA increase to Social Security benefits was way back in 1980 at 14.3% while the lowest was at the end of the first decade of this century with a 0% increase in 2010 and 2011. But it was matched again in 2016. In 2020, the year of the pandemic, it was a meager 1.6%.
For seniors who are forced to spend a substantial part of their income on their health, those years turned out to be difficult. The same pattern repeats when the economy goes into a recessionary tailspin, aver experts.
The Cola For Recipients Yet To Claim Benefits
Potential beneficiaries who stake claims to the Social Security payments will benefit from the record COLA. But they need to gain access to it if they are to start their benefit payments at any later date.
So if a 62-year-old does not claim at this stage even though they are eligible for it, the benefits are adjusted for every COLA till they do claim it at a later date.
Further, by delaying collecting the Social Security benefits, beneficiaries can increase the monthly check amount significantly. Financial experts stress that people should wait till the last moment, possibly until they are seventy.
This will prove substantially beneficial as the benefits increase by a healthy 8% for each year from the full retirement age, which is typically 66-67, to the age of seventy. But whether this strategy proves to be the ideal one is also linked to other factors such as the beneficiaries’ marital status and their health situation.
Experts say that claiming the Social Security amount should not be influenced by the amount of the Cost of Living Adjustment. It does not help or hurt the beneficiary when they finally claim as they are entitled to it either way.
Record Increase And Its Impact On The SS Funds
The Social Security trust funds are capable of paying the amount of the full benefits through 2035. This was revealed in June 2022 by the Social Security Board of Trustees. The program will at that period be capable of paying 80% of the benefits, as projected by the board.
But historical increases harm the COLA funds. For instance, the increase in 2023 could hasten the depletion of the trust funds by at least a calendar year says the Committee for Responsible Federal Budget.
The prevalence of high wages will prompt workers to contribute more with more payroll tax moving into the program. This will substantially help in offsetting that. In 2023, the maximum taxable earnings will climb to $160,200, up from $147,000 this year.
The Social Security trustees have projected a 3.8% COLA report in their annual report that was out in June. The Bipartisan Policy Center economic policy director Shai Akabas, speaking of the 2023 COLA adjustment said that the total cost of this program is expected to be in the region of 5% larger than the previous year’s figures.
As various factors such as wage increases, mortality, and immigration affect the funds of the program, it becomes difficult to gauge the exact rate of increase seen in 2023 will affect the date of the projected depletion of the funds.
The Fate Of Future Increase In Benefits
While it has been a record increase for the COLA in 2023, future beneficiaries should be prepared that increase in the future will not be quite as substantial. If there is a fall in the rate of inflation, the COLA size will also be negatively affected and we could see a substantial downslide, as seen at the end of the first decade.
It remains to be seen if the CPI-W is the best measurement for the increases each year. experts ever that the CPI for the elderly, called the CPI-E, is a better measure of the cost that is paid by seniors. There have been multiple Congressional bills that have called for a change in the measure that is used to arrive at the annual increase in the CPI-E. there has also been a suggestion for a Chained CPI that could help to curb federal expenditure.