The next Social Security cost-of-living adjustment, or COLA, that comes down the pike could be a big one. This year, seniors on Social Security saw their benefits increase 5.9% as a result of inflation. But over the past number of months, inflation has been even more rampant, and it's unlikely to slow drastically in the near term.
That's significant, because third-quarter inflation data is used to calculate Social Security COLAs. Once that data becomes available, the Social Security Administration runs the numbers and typically puts out details of the following year's COLA during the first half of October.
Meanwhile, based on recent inflation trends, there are different COLA estimates being tossed around. Some say seniors are looking at an 8.6% boost to their Social Security income in 2023. Other estimates are calling for an almost 11% increase.
But while you might be curious to know what sort of raise you're in for, trying to guess at that number really isn't a great use of your time. A better bet is to take steps to rethink your budget and try to boost your retirement income. Because chances are, no matter what next year's Social Security COLA looks like, it's going to fall short.
Don't just bank on a large COLA
Last fall, seniors were thrilled to hear that they'd be getting a 5.9% COLA for 2022. But so far, that raise has not managed to keep pace with inflation, leaving many of them to pinch pennies in an effort to stay afloat.
That's why it really doesn't pay to spend time trying to figure out what next year's Social Security COLA will amount to. Whether it's in the 8% range, higher, or lower, the reality is that it probably won't give you the buying power you're after.
Remember: Any raise you get will be tied to inflation. So if next year's COLA is far more generous than this year's, it will only be because living expenses are that much higher.
If you want to get ahead financially in 2023, or just avoid falling behind, you might want to take a deep dive into your budget and figure out if it's possible to cut some expenses. That could mean downsizing to a smaller home or going from a two-car household to a single-car household.
At the same time, you may want to look at options for boosting your income. If you have a larger home that you don't think you'll downsize from, you could try renting a portion of it out instead.
Or there's always part-time work to consider. These days, there are many part-time jobs available remotely, so if you're concerned about working in a public setting (or simply don't want to), it doesn't mean you won't manage to find work.
Wait and see
Next year's Social Security COLA won't be announced for months. Rather than stress over the specifics, spend your summer finding ways to shore up your finances ahead of 2023.
There's a good chance next year's Social Security COLA will be the largest one seniors have seen in decades. But whether that actually does anything for your finances is another story completely.