Millions of retired seniors depend on Social Security to provide a large chunk of their monthly income. And for some, Social Security provides all of their income. But those who rely too heavily on those benefits often wind up struggling in retirement.
Even though Social Security benefits are eligible for yearly cost-of-living adjustments, or COLAs, often, those raises don’t do a good enough job of helping seniors maintain buying power as living costs rise. Such has been the case this year, in fact.
At the start of 2022, seniors on Social Security saw their benefits go up 5.9%. That marked their largest raise in decades.
But so far, the rate of inflation has far outpaced that raise. In June, the Consumer Price Index rose 9.1% on an annual basis, marking the fast pace since 1981. When we compare a 5.9% COLA to a 9.1% increase in living costs, it’s easy to see why so many seniors today are having a hard time making ends meet even with more generous benefits at their disposal.
Meanwhile, based on recent inflation data, some experts are calling for an even larger Social Security COLA in 2023 – one as high as 10.5%, according to the nonpartisan Senior Citizens League. But whether that’s a good thing is really up for debate.
If seniors were to get a 10.5% COLA in 2023, it would amount to roughly $175 more per month for the average beneficiary. That would also result in an average monthly retirement benefit of $1,668.
But when we compare that monthly benefit to the cost of living today, we see that it’s not much to write home about. Inflation has driven the cost of everything from shelter to food to utilities up to an almost unmanageable degree. And if next year’s Social Security COLA amounts to 10.5%, it will mean that inflation picks up even more over the next few months.
Social Security COLAs are actually based on third-quarter inflation data, which is why the best we can get right now is an estimate of next year’s raise – not an exact figure. The Social Security Administration typically makes its COLA announcement during the first half of October, once third quarter inflation data is made available.
Now given the way living costs have risen, it’s easy to see why seniors might be hoping for a large boost to their benefits in 2023. But what they should also realize is that a generous COLA may not do them all that much good.
In fact, rather than bank on a large COLA, seniors who get the bulk of their retirement income from Social Security should do what they can to conserve funds and cut back on spending. For some, that could mean working part-time in retirement. For others, it could mean downsizing.
The reality is that Social Security was never meant to sustain seniors. Rather, it’s supposed to serve as a supplement to other income sources, like retirement plan withdrawals. Even if seniors wind up with a giant raise in 2023, those who get most of their income from Social Security will likely end up having a difficult time making ends meet.
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