Social Security can make for a more financially secure retirement, and many older adults depend heavily on their benefits to make ends meet. Any changes to the program, then, could potentially make a big difference in your retirement.
Next year will be monumental for seniors on Social Security, as there's one drastic change on the horizon. While it will result in larger monthly checks, it's not all good news. Here's what you need to know about what's coming.
A record-breaking COLA may be coming
Later this year, the Social Security Administration will announce next year's cost-of-living adjustment, or COLA. This adjustment aims to help benefits keep up with naturally rising inflation so that your monthly checks maintain their buying power.
Most years, the COLA will fall anywhere from around 2% to 4%. This past year, seniors received a massive 5.9% raise to account for increasing inflation in 2021. But in 2023, the COLA is set to be record-breaking.
While we won't know the official COLA until October, the projected figure is around 9.6%, according to estimates from nonprofit group The Senior Citizens League. Even if inflation slows down throughout the rest of the year, the projected COLA for 2023 will still be around 9.3%. If inflation surges, it could potentially be as high as 10.1%
That will be the highest COLA since 1981, and the average retiree will see a boost of around $160 per month in 2023 as a result of this unusually large adjustment.
The not-so-good news
A record-breaking COLA may sound like good news for seniors, especially as the costs of everyday goods and services continue to soar. While a higher COLA is sorely needed to make inflation more bearable, it's not exactly the raise many people may be expecting.
COLAs are only intended to help Social Security maintain buying power, not increase it. Also, these adjustments have historically done a poor job of actually keeping up with inflation.
Case in point: Even with a massive 5.6% raise last year, inflation has soared by around 8.5% over the past 12 months, according to the most recent data from the Bureau of Labor Statistics. If seniors do receive a 9.6% raise in 2023, that will barely keep up with the actual inflation rate.
Over time, Social Security has been steadily losing buying power. In fact, benefits have lost around 40% of their purchasing power since 2000, according to The Senior Citizens League -- and that's with annual COLAs.
To be clear, a higher-than-average COLA in 2023 will go a long way toward helping seniors afford everyday necessities. But it won't go much further than that. It's wise, then, to be realistic with your expectations as we head into 2023.