How does the COLA affect my Social Security retirement benefits?
Inflation is cutting into the purchasing power of seniors receiving Social Security. How could the 2023 COLA affect benefits?
Inflation is beginning to impact the wallets of many across the country, but seniors, many of whom are on a fixed income, are really struggling to keep up. Twenty-three percent of people over sixty-five reported difficulty covering basic household expenses in May. This is up from sixteen percent during the same period last year.
The Senior Citizens League (SCL) has released the preliminary results of a study showing that many Social Security recipients have lost around forty percent of their purchasing power since 2000. In part, much of this loss stems from inflation currently affecting the market.
What is the COLA?
The Cost-of-living-adjustment, or COLA is a percent increase applied to Social Security benefits each year based on price increases in the market. The Consumer Price Index, which measures inflation across a wide variety of goods and services, is used to calculate the COLA.
The indicator used to determine the Social Security COLA is the CPI-W or Consumer Price Index for Urban Wage Earners and Clerical Workers. Since the 2022 COLA was announced, the CPI-W has tracked an additional seventy percent price increase in the average price of consumer goods. These increases are not accounted for in the benefit amounts currently distributed. The Social Security Administration collects and analyzes CPI-W data from July, August, and September to determine the COLA.
When will the 2023 COLA be announced?
The Social Security Administration will announce next year’s COLA in October, and the amount will be applied to benefits beginning in January 2023. Based on current inflation trends, the SCL has estimated that next year’s COLA could reach 8.3 percent, surpassing the historic 5.9 percent increase announced last year.
Medicare faces serious funding challenges in the coming decade?
As the Baby Boomers, the US’ largest generation, begin to retire, there are many concerns over the solvency of Social Security in the long term.
Senators Bernie Sanders and Congressman Peter DeFazio introduced the Social Security Expansion Act last week, which would ensure the program’s financial stability moving forward.
The bill mandates that wealthier taxpayers contribute what Sanders and DeFazio describe as their “fair share” by lifting the upper-income cap to mandate that workers with higher-incomes pay a proportional payroll tax to Social Security, compared to workers with lower salaries.
Additionally, The leaders have made it clear that this change would not raise taxes for ninety-three percent of households and could increase benefit amounts by up to $200 a month.
Additionally, the bill would create a new CPI for the elderly based on goods and services they tend to rely on to give the Social Security Administration a better indicator upon which to determine the COLA for a given year. Defending the creation of this new index, lawmakers said that compared to younger people, seniors “spend a disproportionate amount of their income on health care and prescription drugs and that would be reflected in the formula for calculating COLAs under this legislation.”