Social Security Benefits Could Rise 8.6% in 2023 – But It’s Not All Good News | Smart Change: Personal Finances

(Maurie Backman)

There’s a reason seniors who derive most or all of their income from Social Security tend to struggle financially. These perks often do a poor job of keeping up with inflation.

This year, Social Security recipients got their biggest cost-of-living adjustment (COLA) in decades — a 5.9% increase that took effect in January. The reason for this giant increase? Galloping inflation.

Meanwhile, inflation has been even more galloping in recent months. As such, the nonpartisan Senior Citizens League just released an estimate that seniors could be in line for an 8.6% COLA in 2023.

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Of course, the COLA data is based on third quarter inflation data, so the aforementioned figure is really only speculative at this point. But anyway he is it’s fair to assume that Social Security will get a pretty big boost in 2023 — one that could potentially make that year’s 5.9% feel like bargaining chip.

At first glance, this may seem like a good thing. But in reality, this is far from the case.

Seniors have little chance of gaining purchasing power

The whole point of Social Security COLAs is to help beneficiaries maintain their purchasing power as the cost of living rises. But even if Social Security gets a huge boost for 2023, seniors are unlikely to come out on top.

In the best of cases, we can hope that Social Security distributes a sufficiently generous increase to help seniors keep up with inflation. But what is more likely to happen is that even a generous raise will fail.

That has certainly been the case this year. While a 5.9% COLA seemed generous heading into 2022, in recent months inflation has climbed much higher on an annual basis, putting recipients in a position where they are once again scrambling to cover their invoices. And there’s no reason to think we won’t have a repeat storyline in 2023.

A key lesson for those who are not yet retired

Unfortunately, it may be too late for current Social Security recipients to tackle the problem of runaway inflation. Many seniors are unable to work due to health issues or concerns. And for some, the lack of current skills could be a barrier to getting a part-time job.

Plus, today’s seniors can’t exactly step back in time and build a solid nest egg designed to get them through retirement. But today’s workers can.

If you’re years away from retirement and want to avoid the financial crisis that many Social Security seniors face today, your best bet is to build your own savings so you’re less dependent on those benefits over any line. If you were to save $300 a month over the next 40 years, you’d end up with a nest egg worth about $933,000, assuming an average annual return of 8% in your portfolio (that’s a bit below the stock market average, and a reasonable assumption for a 40-year investment window).

It’s too early to put a hard number on next year’s Social Security COLA. Either way, seniors should expect a substantial increase. But one thing they should not expect to have an easier time paying their bills. Unfortunately, the opposite may end up being true, as is the case today.

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