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New government inflation data shows the measurement used to calculate Social Security annual cost-of-living adjustments was up 6.3% for the past 12 months as of December.
That’s as this year’s 8.7% COLA kicks in for more than 65 million Social Security beneficiaries this month.
That new data indicates Social Security beneficiaries will recover $38.70 after months of grappling with record high inflation, according to a new report from The Senior Citizens League.
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Consumer prices rose 6.5% on an annual basis as of December, according to headline consumer price index data released on Thursday. The consumer price index for Urban Wage Earners and Clerical Workers, or CPI-W, which is used to calculate Social Security’s annual COLA, rose 6.3%.
Average Social Security benefits fell short of inflation by about $1,054 from the start of the pandemic through 2022, according to a new analysis from the non-partisan senior group. That excludes Medicare Part B premiums, which are typically deducted directly from Social Security benefit checks.
So will retirees who rely on Social Security for income finally catch up in 2023 after record high inflation?
The answer to that question is still uncertain, according to Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League.
How much beneficiaries are able to catch up will mostly depend on inflation coming down.
Yet if inflation declines substantially, that may lead to a much lower — or even no — COLA to benefits in 2024, which would also make it difficult to recover, according to Johnson.
“It’s going to be extremely difficult for people to recover, if at all,” Johnson said.
In 2020, a 1.6% COLA kept pace with inflation. Average benefits ended that year ahead by about $53 prior to deductions for Medicare Part B.
In 2021, however, with a 1.3% COLA, the average benefit came out behind by $612, or $51 per month.
In 2022, a 5.9% COLA helped curb the shortfall, yet average benefits still came out behind by $495, or $41.25 per month.
The predicament has made it more important for retirees to carefully plan for all income streams, not just Social Security.
“It’s a good thing for people who are planning for retirement to consider, understand the impacts of inflation, not only on your Social Security benefits, but especially on retirement benefits that are not protected for inflation,” Johnson said.
The 8.7% COLA may not greatly increase beneficiaries’ buying power, as everyday costs are still high, according to Joe Elsasser, founder and president of Covisum, a Social Security claiming software company.
“Although it might seem like a raise, it’s probably not a real raise,” Elsasser said.
The Social Security Administration uses a measurement called the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, to calculate the COLA each year.
The annual cost-of-living is based on the year over year percentage increase in the CPI-W for the third quarter. If no increase happens, there will be no COLA.
The chart above shows which costs have gone up the most, based on the CPI-W data through December. To be sure, some advocates have argued other measurements may better reflect the costs retirees face, such as the Consumer Price Index for the Elderly, or CPI-E, and therefore may be better gauge for the annual cost-of-living adjustment.