Social Security retirees are going to get a big raise next year. You've probably heard benefits are going to go up, and the increase could be as high as 11.4%. This may seem exciting. But it's not.
Here's why.
Image source: Getty Images.
Why seniors shouldn't look forward to a large benefits increase
A big Social Security increase is not something seniors should want because the change isn't going to provide "extra" funds.
Most often, when you think about getting a raise, you assume you're going to have more money. If you're working and your employer makes your paycheck bigger due to your solid work performance, you'll be able to buy more than you did before.
But Social Security benefits don't increase because seniors are doing a really great job being retired. They go up because of a formula built into the program that provides for cost-of-living adjustments (COLAs). So despite the fact that the benefits increase is commonly called a raise, it is not one at all. It's just an adjustment to benefits to account for price increases.
The COLA will be calculated next year, as it is every year, based on year-over-year changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). So if the CPI-W numbers show prices have risen 11.4%, that's why you'd get this amount added to your Social Security check.
The problem is, your payment is going to be bigger, but it's going to buy the same amount because the prices of everything will be higher by definition. And your other income sources won't have received an automatic COLA due to surging inflation. If you're using savings to pay some of your costs, it's going to buy 11.4% less than it used to thanks to the fact prices have gone up so much.
Seniors need to understand that inflation isn't going away
Retirees have already been dealing with record-high inflation for months. In fact, seniors got the highest COLA in 40 years in 2022. And that "raise" hasn't done nearly enough to help them maintain buying power this year, since inflation kept surging after the benefits bump was calculated for 2022.
Sadly, things are probably not going to get markedly better anytime soon. Even if prices stop increasing rapidly, the cost of common items such as gas and groceries would have to fall quite a bit to get back to where we were pre-pandemic. Unless and until that happens, retirees must cope with Social Security checks that don't quite keep up, and also with savings that have lost a substantial amount of value in real terms.
No one can predict when or if costs will start to fall again, but the Federal Reserve is projecting future interest rate increases, so it's pretty clear that the experts at the U.S. Central Bank don't expect this to begin happening immediately. As a senior on a fixed income, it's important to realize what this means for you.
Rather than getting excited about a big Social Security raise, start looking for ways to cut back further on spending and make sure you have the right investments so you can limit how much your savings loses ground.
