Why Seniors Should Hope for Less Increase in Social Security in 2023 | Smart Change: Personal Finance

(Morri Bachmann)

It is no secret that inflation these days is wreaking havoc on many people’s budgets. With the cost of everything from gas to utilities to clothing to groceries soaring, many consumers are struggling to make ends meet.

Seniors in a similar boat. Many retirees who receive the bulk of their income social Security They’re having a hard time keeping up with living expenses, and it comes on the heels of the program’s most generous cost of living adjustment (COLA) in decades.

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In fact, recent estimates suggest that seniors on Social Security may be in line with 8.6% cola In 2023. Of course, it’s too early to say for sure what COLA will look like next year because that number is based on inflation data from the third quarter of the year, well, we’re not there yet.

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But either way, it seems likely that Social Security seniors will see their benefits increase significantly in 2023. Whether that’s a good thing, though, is up for debate.

Why do not the elderly hope for a giant increase

There are two types of raises that employers usually offer. The first is an increase in the cost of living, and the other is a merit increase. Merit increases are based on performance and tend to be the more generous of the two. After all, the point of raising the cost of living is simply to raise wages just enough to enable workers to keep up with rising expenses, when in fact increasing the merit may actually help a particular employee move forward financially.

In the context of Social Security, there is no such thing as a merit-based COLA. Instead, COLA is based on inflation data, the purpose of which is to help seniors retain their purchasing power as living expenses rise.

But when COLAs rise dramatically, it’s only because the cost of living does the same. And often, even when Social Security gets a nice COLA, it’s not really enough to help seniors stay afloat.

That’s why Social Security recipients don’t really want to get a big COLA for 2023. If that’s an 8.6% increase, the higher cost of living will likely put seniors behind financially even once their benefits are increased.

Part of the reason for this is the way the COLA is calculated. Simply put, COLA is based on data from the Consumer Price Index for urban wage earners and clerical workers (CPI-W). But CPI-W does not really reflect the costs that older adults typically face.

For years, leading advocates have suggested using an index specific to older adults – the CPI-E, or Consumer Price Index for Older People – to calculate COLA and make it more equitable. But this idea has not yet gained traction to the point where it becomes a reality.

Older people have always been losing purchasing power

Older people were on Social Security Buyer’s strength is steadily losing Since 2000. And the big COLA of 2023 won’t necessarily do much, or anything, to tackle this problem. This is why hoping for a great COLA doesn’t really pay off. Instead, what seniors should hope for is that lawmakers change the way increases are initially calculated.

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