Inflation was still red hot in August, and not-for-profit advocacy group The Senior Citizens League (TSCL) said that it anticipates the Social Security cost-of-living-adjustment (COLA) to be 8.7%, based on the new Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) data through August. However, the increase might not be sufficient to deal with inflation, according to TSCL.
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“A COLA of 8.7% is extremely rare and would be the highest ever received by most Social Security beneficiaries alive today. There were only three other times since the start of automatic adjustments that it was higher (1979-1981),” Mary Johnson, Social Security, and Medicare policy analyst, TSCL, said in a statement.
For the month, the CPI-W declined 0.2% prior to seasonal adjustment, according to the Bureau of Labor Statistics (BLS.) Despite decreasing gas prices, inflation was still high in August. The BLS released its Consumer Price Index (CPI) on Sept. 13 and the all-items index for the 12 months ending August increased 8.3%, driven largely by soaring shelter, food and medical care prices.
“My COLA estimate has dropped to 8.7%, almost a full percentage point from the 9.6% that I forecast last month,” Johnson said in the statement. “That was a significant drop, but the Consumer Price Index, CPI-W (CPI-W), the index that Social Security benefits are based on, has decreased even –by 1.10 percentage point year over year to 8.7%.”
There is only one month of consumer price data left to go, before the Social Security Administration announces the COLA, on October 13, 2022.
COLAs are based on increases in the CPI-W. “A COLA effective for December of the current year is equal to the percentage increase (if any) in the CPI-W from the average for the third quarter of the current year to the average for the third quarter of the last year in which a COLA became effective,” according to the SSA website. If there is an increase, it must be rounded to the nearest tenth of one percent.”
The latest COLA for 2022 was 5.9% for Social Security benefits and SSI payments.
TSCL said that a COLA of 8.7% would increase the average retiree benefit of $1,656 by $144.10. However, based on inflation through August, it calculated that the COLA for August 2022 has fallen short on average by 48%.
“A $1,656 benefit is short about $43.80 per month on average and by a total of $417.60 year to date,” according to the statement. “Without a COLA that adequately keeps pace with inflation, Social Security benefits purchase less and less over time, and that can create hardships especially as older Americans live longer lives in retirement.”
Johnson said that retired and disabled Social Security recipients spend a bigger portion of their incomes on healthcare costs, housing, and food and less on gasoline.
“Over the past 12 months, they rank food costs as their fastest growing expenditure, housing, and transportation in that order,” she said. “Indications are that the COLA will not reflect pockets of persistently high inflation affecting retired and disabled Social Security recipients. That puts tens of millions of retirees at risk of continuing to fall behind, or as our reader described “financial drowning.”
According to TSCL’s 2022 Retirement Survey, about 59 percent of survey participants believe they could be at risk of higher tax liability for 2022 due to the 5.9% COLA received this year and a COLA of 8.7% would present similar ongoing increased tax liabilities for next year.
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TSCL added that Medicare Part B premiums, which tend to be announced in mid-November, may not grow by very much in 2023.
“The Medicare Trustees forecast in their 2022 annual report that the standard Part B premium in 2023 would stay the same as it is now, $170.10.”
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This article originally appeared on GOBankingRates.com: Social Security: 8.7% COLA Increase for 2023 Largest In Four Decades – Will It Be Enough?