Social Security checks may rise in 2023: Here’s how much extra seniors can get | Smart Change: Personal Finance

(Shawn Williams)

Through thick and thin, social Security It is the most vital social program of our nation. It is responsible for lifting 22.5 million people out of poverty each year, and is expected to play a vital role in helping those in need make ends meet during their golden years. A recent Gallup National Survey found that 84% of non-employees plan to rely on Social Security as their “primary” or “secondary” source of income in retirement.

Given how critical the program is to the financial well-being of the tens of millions of Americans who are currently retired, perhaps there is no more awaited announcement globally than the Social Security Annual Cost of Living Adjustment (COLA).

Image source: Getty Images.

Understanding the cost of living adjustment in Social Security

People also read…

Social Security’s COLA counts as an “increase,” but not in the truest sense of the word. It is an increase in annual benefits that is passed over most years and is designed to help beneficiaries keep up inflation (i.e. the higher cost of goods and services they buy). This is why there is an “increment” in quotation marks, because COLA is not intended to help recipients move forward.

Since 1975, the Consumer Price Index for Urban and Clerical Workers (CPI-W) has been an inflationary loop for Social Security. CPI-W has Eight major spending categories And dozens and dozens of subcategories, each with its own weights. This allows for a summary reading of the Consumer Price Index (CPI-W) that can be easily compared to the previous year to determine if inflation or deflation is present.

One of the most interesting aspects of Social Security’s COLA is that only a small portion of the year determines how much raise beneficiaries will receive from the “boost” program. Only readings from the third quarter (July-September) COLA affects Social Security for the next year. This means we are about to enter the months of interest in America’s top social program.

Social Security Checks Set for Historic Increase in 2023

Although the other nine months won’t go into your Social Security’s COLA calculation, they can still provide great clues about what to expect in the next year. When it comes to 2023, tea leaves mean a historic monthly payment increase.

According to Mary Johnson, a social security policy analyst at the Senior Citizens League (TSCL), a high-profile nonpartisan advocacy group, the annual COLA for 2023 “could be about 8.6 percent.” If this number pays off, it will be the largest year-over-year percentage increase for monthly benefits in 41 yearsand the largest increase in nominal dollar payments in history.

Based on the latest snapshot provided by the Social Security Administration, nearly 47.7 million retired workers receiving a monthly take-home benefit were an average of $1666.49 in April. By December, I estimate that monthly amount will increase to $1,683. The roughly $2 per month increase in average payments through December is the job of newly retired workers joining the benefits pool each month.

If Johnson’s COLA estimate proves accurate, the average retired worker can We expect their monthly earnings to rise by about $145 in 2023, or approximately $1,740 in additional income next year. Likewise, the average disabled worker’s benefit and the average survivor’s compensation will rise by more than $117 per month and $114 per month, respectively, in the next year.

Image source: Getty Images.

Higher benefits won’t make up for Social Security shortcomings

On the face of it, a retired worker’s average benefit increase of $145 per month would probably make seniors very happy. But Not everything is as it seems – Even with increased historical benefits seemingly on the horizon.

As noted, Social Security’s COLA is not a tool designed to help beneficiaries move forward. If they are receiving a significant increase on an annual basis, it is because the cost of everyday goods and services have increased by a similar amount. Energy, food, and housing costs are rising at an alarming pace, threatening to swallow most or all of retired workers in 2023.

But There is a bigger problemand it concerns the inflationary cord of Social Security, CPI-W.

As the full name of this inflation gauge suggests, it tracks the spending habits of “urban wage earners and clerical workers.” These are typically working-age Americans who do not receive Social Security benefits, and who spend their money quite differently than seniors who make up the bulk of the program’s recipients.

For example, Medicare and housing expenses represent a higher percentage of total spending for older adults than for working-age Americans. Conversely, the costs of education, clothing, and transportation are higher for working Americans than for older adults. But because CPI-W is geared toward urban wage earners and clerical workers, it reduces critical costs to retired workers, while also lifting the weight for less critical expenses.

Since 2000, TSCL has reported that a file The purchasing power of Social Security income drops by 40%.. An estimated 8.6% of COLA in 2023 will not help retired workers make up much or any basis, compared to what they have already lost.

The $18,984 Social Security Bonus Most Retirees Totally Forgot

If you’re like most Americans, you’re behind on retirement savings for a few years (or more). But a few little-known “Social Security secrets” can help ensure a higher retirement income. For example: One easy trick can pay you up to $18,984 extra…every year! Once you learn how to maximize your Social Security benefits, we believe you can retire with confidence with the peace of mind we all seek. Simply click here to discover how to learn more about these strategies.

Motley Fool owns a profile Disclosure Policy.