When the Social Security Administration announced that benefits would be rising 5.9% in 2022, many seniors jumped for joy (or got as close to doing so as their bodies allowed for). After years of stingy cost-of-living adjustments, or COLAs, 2022's raise finally represented a substantial sum.
But it didn't take long for that 5.9% COLA to be rendered somewhat useless. Since the start of the year, inflation has soared to an extreme degree. And while the most recent Consumer Price Index reading from July showed a modest drop in inflation compared to June's level, at 8.5%, it was sky-high nonetheless.
Because inflation has soared so much, seniors on Social Security have lost buying this year despite a generous raise. And while experts are calling for an even more substantial COLA in 2023, the fear is that seniors will still end up falling behind financially.
This year's COLA just didn't cut it
Although Social Security benefits got a nice boost at the start of 2022, the non-partisan Senior Citizens League insists that seniors have by no means come out ahead. Quite the contrary -- the group estimates that based on the average monthly benefit, seniors on Social Security have been short $58 a month due to inflation, and have lost $373.80 year to date.
Of course, it's not just seniors who are losing buyer power. While wage growth has been strong this year for members of the labor force, increases in pay just aren't keeping up with rising living costs. So all told, everyone is struggling with extreme inflation.
That said, working folks tend to have more options for scrounging up extra cash, like boosting job skills to secure raises or taking on second jobs. Seniors on Social Security who haven't worked in years may be more stuck.
Will 2023's COLA break the cycle?
The Senior Citizens League was, at one point, projecting that Social Security benefits would rise 10.5% in 2023. It's now scaled back that estimate to 9.6% -- a raise that would give the average beneficiary an extra $159 per month.
Of course, we won't have a solid handle on next year's Social Security COLA until third quarter inflation data is available in full. And that won't happen for a number of weeks. But either way, while seniors can hope for a generous raise in 2023, they should also gear up for the fact that it may not help them come out ahead in the face of inflation. A best-case scenario would really be an increase that helps seniors keep pace with rising costs.
All of this underscores the importance of not retiring on Social Security alone. Workers are commonly advised to build savings so they have income to supplement their benefits. But many seniors today don't have nest eggs to fall back on. Rather, they're largely limited to the income Social Security provides them. And it's those seniors who stand to get hurt the most if 2023's COLA winds up falling short the way 2022's COLA clearly has.