What will Social Security’s upcoming cost-of-living adjustment (COLA) look like? Will it be 8%? 10%? Somewhere in between?
For months, experts have been trying to guess at next year’s COLA using information they’ve gotten to date from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). That’s the index used to determine COLAs.
We won’t have a true sense of what 2023’s Social Security raise amounts to until we get September CPI-W numbers. That’s because the Social Security Administration uses third-quarter data from that index to calculate COLAs.
If you’re on Social Security and are eagerly anticipating that COLA announcement, which is expected to happen on Oct. 13, you’re no doubt in good company. But rather than wasting your energy picturing different COLA scenarios, it pays to take steps to stretch your Social Security income in the coming year. That’s because next year’s COLA is likely to ultimately fall short — just as COLAs have frequently done in the past.
An imperfect system
If you get a lot of your monthly income from Social Security, then it’s natural that you’d be curious to know what raise you’re in line for. But no matter what the number comes to, it’s best to accept the reality that it probably won’t do a good enough job of helping you cover your living costs and maintain your buying power.
The nonpartisan Senior Citizens League estimates that Social Security beneficiaries have lost 40% of their buying power since 2000. That’s because benefits have increased by 64% over the past 22 years, yet the cost of goods and services retirees commonly purchase has risen by 130% — almost twice the rate of COLAs.
So what is given? Well, a big problem boils down to the way COLAs are calculated. The CPI-W is, frankly, not the best way to measure Social Security raises because the index places too much emphasis on costs seniors don’t encounter as much, and it fails to account for the costs they encounter more frequently.
Take gas, for example. That’s a big driver of the CPI-W (no pun intended). But it’s also something retirees may not spend so much of their income on, what with not having jobs to commute to in many cases. On the other hand, seniors die tend to spend a lot of their income on healthcare. But that’s not a heavily reflected expense in the CPI-W.
Advocates have long been calling for changes in the ways COLAs are calculated for this reason. But that’s not happening anytime soon. As such, no matter what 2023’s COLA ends up being, there’s a good chance those who are depending on it will wind up disappointed — not by the number itself, but by the limited buying power it gives them.
A better use of your time
Rather than spending the next number of weeks trying to figure out how much your Social Security benefits will increase next year, a better bet may be to think about how you can change your lifestyle and spending to stretch that income further. That could include downsizing to a less expensive home or moving to a part of the country where living costs generally aren’t as high.
You might also consider picking up part-time work to supplement your Social Security income. This assumes, of course, that you don’t have a decent-sized nest egg to tap. If you do, you’re probably not fixating on next year’s Social Security COLA as much as those who get most of their retirement income from those benefits alone.
Social Security was never meant to sustain seniors in the absence of other income. But for many retirees, that’s the case. And unfortunately, even a giant COLA in 2023 won’t help those who are cash-strapped today improve their financial situations substantially.
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