Over the last couple of years, prices for nearly everything have increased. In many cases, the prices have skyrocketed. This has been especially problematic for retirees living on fixed incomes.
So when Social Security announced a cost-of-living adjustment (COLA) of 8.7% for 2023, seniors across the U.S. breathed a small sigh of relief. After all, it was the biggest benefits increase in more than four decades.
But is the 8.7% Social Security COLA enough? Here's how things are looking so far this year.
Image source: Getty Images.
How retirees feel
Retirees don't seem to feel that the big Social Security COLA is enough. At least, that was the case when The Senior Citizens League (TSCL) conducted a survey earlier this year.
In that survey, 54% of older consumers didn't think that the 8.7% Social Security COLA would keep pace with their increased costs in 2023. A whopping 96% of the TSCL survey didn't think that the COLA would be enough to help them catch up from the impact of inflation in recent years.
Granted, those survey results were published in February -- too early for retirees to really know how the rest of the year would go. However, it appears that seniors were basing their concerns about 2023 on their experiences in the past.
Over 50% of survey respondents said that their household costs last year increased by more than the 8.7% COLA that went into effect this year. That COLA amount was calculated using inflation numbers from the third quarter of 2022.
How the COLA is helping so far
The Social Security Administration uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to determine annual COLAs. Here's how the CPI-W has increased year over year in the first three months of 2023:
| Month | CPI-W Increase |
|---|---|
| January | 7.3% |
| February | 5.8% |
| March | 4.5% |
Data source: Social Security Administration. Table created by author.
Based on the inflation levels so far this year, it looks like the COLA should be helping many retirees cope with rising costs. None of the CPI-W year-over-year increases in the first three months of 2023 were above the 8.7% COLA. Also, inflation appears to be moderating.
There is some other data that potentially supports the view that the big Social Security increase is helping seniors stay ahead of inflation. In March, Bank of America reported faster spending growth for older Americans than other age groups. BofA also found evidence in its data that households that receive Social Security benefits have increased their spending more than those that don't.
The financial-services giant concluded that the 8.7% COLA is a likely factor behind this significant increase in spending. However, it also noted that some of the spending increase among older Americans could be the result of delayed spending by seniors during the pandemic.
Too little, too late?
At least so far this year, the Social Security COLA appears to be enough to offset higher costs incurred in the first few months of 2023. However, there's still reason to believe that the 8.7% adjustment was too little, too late.
TSCL policy analyst Mary Johnson calculated the Social Security benefits increase required to keep up with inflation between January 2020 and December 2022. She found that the actual benefits (including COLAs received) were, on average, roughly $1,054 below what was needed.
Retirees shouldn't grow too accustomed to big annual benefits increases. Based on the current inflation trends, the 2024 COLA will likely be much smaller than the adjustments received in the past few years.
