It’s no secret that inflation is wreaking havoc on many people’s budgets. Many customers are trying to make ends meet as the cost of everything rises, from petrol to utilities to clothing to groceries.
Senior citizens are in a similar situation. Many retirees who rely on Social Security for most of their income struggle to keep up with living expenses, despite the program’s most generous cost-of-living adjustment (COLA) in decades.
Recent estimates indicate seniors on Social Security may be eligible for an 8.6% COLA in 2023. Of course, it’s too early to predict the COLA for next year because that figure is based on inflation data from the third quarter of the year, and we’re just not there yet.
In any case, it appears that Social Security payouts for seniors will increase significantly in 2023. However, whether or not this is a positive thing is debatable.
Why seniors shouldn’t expect a massive pay raise
Employers frequently hand out two types of raises. One is a merit raise, and the other is a cost-of-living boost. Merit raises are the more generous of the two, based on performance. After all, the purpose of a cost-of-living raise is to raise wages just enough to allow workers to keep up with rising costs, whereas a merit raise may help a person advance financially.
There is no such thing as a merit-based COLA in the context of Social Security. COLAs, on the other hand, are based on inflation data, and their goal is to help seniors keep their purchasing power when their living expenses rise.
However, when COLAs grow significantly, it is only because living costs are rising simultaneously. Even when Social Security receives a large COLA, it is sometimes insufficient to keep seniors afloat.
That is why, in 2023, Social Security recipients should not expect a substantial COLA. Even if the 8.6% increase is implemented, rising living costs will likely leave seniors in a financial bind, even if their benefits are increased.
The way COLAs are computed is one of the reasons for this. COLAs are calculated using information from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). However, the CPI-W does not accurately reflect seniors’ regular prices.
Senior advocates have urged for years that COLAs be calculated using a senior-specific index, the CPI-E, or Consumer Price Index for the Elderly, to make them more egalitarian. However, that concept has yet to gain traction and become a reality.
Seniors have been losing purchasing power for a long time
Since 2000, seniors on Social Security have been rapidly losing purchasing power. And a huge COLA in 2023 is unlikely to do much, if anything, to alleviate the problem. That is why hoping for a huge COLA is a waste of time. Instead, seniors should expect that policymakers alter the way raises are computed in the first place.
Contact Information:
Email: [email protected]
Phone: 8139269909
Bio:
For over 30-years Joe Carreno of The Retirement Advantage has been a Federal Employee Retirement System specialist (FERS) as well as a Florida Retirement System specialist (FRS) independent advocate. An affiliate of PSRE (Public Sector Retirement Educators), a Federal Contractor & Registered Vendor to the Federal Government, also an affiliate of TSP Withdrawal Consultants.
We will help you understand your FERS & FRS Benefits, TSP & Florida D.R.O.P. withdrawal options in detail while recognizing & maximizing all concurrent alternatives available.
Our primary goal is to guide you into retirement with no regrets; safe, predictable, stable, for life. We look forward to visiting with you.
Disclosure:
Not affiliated with the U.S. Federal Government, the State of Florida, or any government agency. The firm is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Although we make great efforts to ensure the accuracy of the information contained herein we cannot guarantee all information is correct. Any comments regarding guarantees, safe and secure investments & guaranteed income streams or similar refer only to fixed insurance and annuity products. Fixed insurance and annuity product guarantees are subject to the claimsâ€paying ability of the issuing company. Annuities are long-term products of the insurance industry designed for retirement income. They contain some limitations, including possible withdrawal charges and a market value adjustment that could affect contract values. Annuities are not FDIC insured.
