Social Security benefits can make or break retirement for many older adults. Millions of seniors rely on their monthly checks to pay the bills, and for some retirees, Social Security is their sole source of income.
For those living on a fixed income, surging inflation over the past year has made retirement more challenging. Fortunately, seniors could be due for a historic raise in 2023. Here's how much you might receive.
Big changes are coming in 2023
Nearly every year, seniors on Social Security will receive a cost-of-living adjustment, or COLA. This is an annual bump in benefits designed to help your monthly checks maintain their buying power as inflation naturally rises over time.
When inflation is rising faster than average, though, retirees can expect larger COLAs. In general, an average COLA will fall around 2% to 4% per year. This year, seniors received a whopping 5.9% COLA as inflation began to surge. And in 2023, the raise is almost guaranteed to be even bigger.
Nobody knows exactly what the COLA for 2023 will be just yet, as the Social Security Administration won't release the official number until October. But a recent report from nonprofit advocacy group The Senior Citizens League projects that it could fall around 9.6%, based on the latest inflation data.
That number also assumes that inflation will remain relatively stagnant throughout the rest of the year. If inflation increases, the COLA for 2023 could potentially be as high as 10.1%, according to the report. Either way, next year's COLA could be the highest in more than four decades.
Why this may not be good news
The average retiree collects around $1,670 per month in benefits, according to the latest data from the Social Security Administration. If seniors receive a 9.6% COLA in 2023, that will result in a boost of around $160 per month.
While this extra money can go a long way toward affording everyday necessities, Social Security is still facing a serious problem: Benefits are quickly losing buying power.
Annual COLAs are supposed to help benefits keep up with inflation. Historically, though, they've missed the mark. Despite these annual COLAs, Social Security has actually lost around 40% of its buying power since 2000, according to a separate report from The Senior Citizens League.
Over the past 12 months alone, inflation has surged by 8.5%. However, seniors only received a 5.9% COLA for this year, meaning retirees have still lost a significant amount of buying power despite a massive benefit increase.
To be clear, this doesn't mean that the COLA itself isn't helpful for retirees. When inflation is on the rise, any extra money in benefits can make a difference. However, even an extraordinarily large COLA won't necessarily increase your disposable income.
What does this mean for you?
There's not much you can do to fight inflation or help your benefits go further in retirement, but keeping realistic expectations can be helpful.
Social Security isn't as reliable as it used to be, and if benefits continue losing buying power, they may be even less dependable in the future. While you can expect to receive larger checks in 2023, it's wise to be as realistic as possible about how far that money will really go.