(Maurie Backman)
There’s a reason seniors who get most or all of their income from Social Security tend to struggle financially. Those benefits often do a poor job of keeping up with inflation.
This year, Social Security beneficiaries got their largest cost-of-living adjustment (COLA) in decades — a 5.9% increase that took effect in January. The reason for that giant raise? Soaring inflation.
Meanwhile, inflation has been even more rampant in recent months. As such, the nonpartisan Senior Citizens League just put out an estimate that seniors may be in line for an 8.6% COLA come 2023.
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Of course, COLA data is based on third-quarter inflation data, so the aforementioned number is really just speculative at this point. But either way, it is fair to assume that Social Security will get a pretty sizable raise in 2023 — one that potentially makes this year’s 5.9% seem like chump change.
At first glance, that might seem like a good thing. But in reality, it’s far from it.
Seniors are unlikely to gain buying power
The whole point of Social Security COLAs is to help beneficiaries maintain their buying power as living costs rise. But even if Social Security gets a huge boost by 2023, seniors are unlikely to actually come out ahead.
In a best-case scenario, we can hope that Social Security does out a generous enough raise to help seniors keep up with inflation. But what’s more likely to happen is that even a generous raise will fall short.
That’s certainly been the case this year. While a 5.9% COLA seemed generous going into 2022, in recent months, inflation has soared far more on an annual basis, putting beneficiaries in a position where they’re once again scrambling to cover their bills. And there’s no reason to think we won’t have a repeat scenario in 2023.
A key lesson for those who aren’t yet retired
Unfortunately, it may be too late for current Social Security beneficiaries to address the problem of rampant inflation. Many seniors aren’t in a position to work due to health issues or concerns. And for some, a lack of current skills could be a barrier to securing part-time employment.
Furthermore, today’s seniors can’t exactly go back in time and build solid nest eggs designed to get them through retirement. But today’s workers can.
If you’re years away from retirement, and you want to avoid the financial crunch so many seniors on Social Security are facing today, your best bet is to build savings of your own so you’re less reliant on those benefits down the line. If you were to sock away $300 a month over the next 40 years, you’d end up with a nest egg worth roughly $933,000, assuming an average annual 8% return in your portfolio (that’s a bit below the stock market’s average, and a reasonable assumption for a 40-year investing window).
It’s too soon to put a precise number on next year’s Social Security COLA. Either way, seniors should expect a sizable raise. But one thing they shouldn’t expect is to have an easier time covering their bills. Unfortunately, the opposite may end up holding true, as is the case today.
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