While the final Social Security cost of living adjustment won’t be known for several months, the latest Consumer Price Index data suggests that next year’s COLA is approaching double digits.
According to an update by The Senior Citizens League (TSCL) based on the April CPI data released May 11, the annual COLA for 2023 could be around 8.6%—which would be the highest since 1981.
That’s an upward revision from an estimate the group released in March, when it predicted that the 2023 COLA could be as high as 7.6%. The final COLA for 2022 was 5.9%, which was a 40-year high.
Of course, depending on whether the Federal Reserve is successful in its attempts to crack down on inflation, this estimate will likely change over the course of the year before the final COLA is announced in October 2022.
Lost Buying Power
TSCL also notes that high inflation has caused Social Security benefits to lose 40% of its buying power since the year 2000. “That’s the deepest loss in buying power since the beginning of this study by The Senior Citizens League in 2010,” says Mary Johnson, a Social Security policy analyst for TSCL who conducted the research.
Moreover, Social Security purchasing power tracked by the study dropped by 10 percentage points, from a 30% loss of buying power in March of 2021 to 40% in March 2022—the largest such drop ever recorded by the organization’s study.
The study compares the growth in the Social Security COLA adjustments with increases in the price of 37 goods and services typically used by retirees. While prices rose in almost every spending category, benefits were most impacted by sharp increases in energy costs for home heating, gasoline and higher food prices, along with a 14.5% increase in Medicare Part B premiums in January of this year.
This study examined expenditures that are typical for people ages 65 and up, comparing the growth in the prices of these goods and services to the growth in the annual COLAs. It includes cost increases in Medicare premiums and out–of–pocket health care costs that are not tracked under the index currently used to calculate the COLA.
The study found that since 2000, COLAs have increased Social Security benefits by a total of 64%, yet typical senior expenses through March 2022 grew by more than double that rate—at 130%. The average Social Security benefit in 2000 was $816 per month. That benefit grew to $1,336.90 by 2022 due to COLA increases, the study notes.
Since retiree costs are rising so much faster than the COLA, TSCL’s study found, a Social Security benefit of $1,876.70 per month or $539.80 per month more than currently paid would be required just to maintain the same level of buying power as in 2000.
“Retirees know all too well that, Social Security benefits don’t buy as much today, as when they first retired. To put it in context, for every $100 of goods or services that retirees bought in 2000, today they would only be able to buy $60 worth,” observes Johnson.