Social Security Could Get a 7.6% Raise in 2023 — but It’s Not All Good News
For years, seniors on Social Security have been forced to grapple with sub-par cost-of-living adjustments, or COLAs. Those stingy COLAs have caused beneficiaries to lose buying power, resulting in immense financial stress.
This year, Social Security recipients finally got the larger COLA they’ve been waiting for — a 5.9% boost that took effective at the start of 2022. But now, the non-partisan Senior Citizens League is estimating that 2023’s COLA could blow that 5.9% raise out of the water.
Will seniors get an even bigger raise in 2023?
Based on recent inflation date, the Senior Citizens League is estimating that seniors on Social Security could be in line for a 7.6% COLA in 2023. COLAs are calculated based on changes in the consumer price index for urban wage earners and clerical workers (CPI-W). And they’re also specifically based on third quarter data, which means that it’s way too soon to have a definitive handle on next year’s COLA.
As such, that 7.6% estimate is just that — a projection. But it’s rooted in actual data. And anyone who’s been to the supermarket or gas station lately knows just how much living costs have been rising. A 7.6% Social Security COLA therefore doesn’t seem so unlikely.
But will that raise be enough to actually help seniors maintain their buying power? That’s the bigger question.
Even this year, seniors on Social Security are falling behind because the rate of inflation is outpacing their 5.9% COLA. And if seniors do indeed see their benefits rise by 7.6% next year, that will only happen as a result of soaring living costs.
Or, to put it another way, a 7.6% COLA will not create a scenario where Social Security beneficiaries come out ahead financially. In fact, that’s the problem with generous COLAs — there’s a reason for them, and that reason is higher living expenses. And so when benefits rise, seniors don’t really gain much from that.
A better way to get ahead
Since COLAs — even generous ones — often fail to help seniors retain their buying power, a better bet is to have savings to fall back on during retirement. Today’s retirees can’t go back in time and amass giant nest eggs. But those who are years away from retirement can make an effort to build savings to avoid becoming overly reliant on COLAs — or Social Security benefits in general.
In fact, socking away just $300 a month over 30 years could result in a $408,000 nest egg if the portfolio attached to it delivers an average annual 8% return on investment. That return is a bit below the stock market’s average, and so it’s a reasonable one to work with for a 30-year investing window.
Meanwhile, it’s too soon to know what next year’s Social Security raise will look like. But whether it’s 7.6% or a little more or less, the reality is the same — seniors who get the bulk of their income from Social Security are likely to struggle and have limited financial flexibility.
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