Social Security retirees will get a big raise next year. You’ve probably heard that the benefits will increase, and the increase can be as high as 11.4%. This may seem exciting. But that is not it.
This is why.
Why seniors shouldn’t look forward to a big increase in benefits
A big increase in Social Security is not something seniors should want because the change won’t bring “extra” money.
Usually, when you think about getting a raise, you assume that you will have more money. If you work and your employer makes your salary higher because of your solid work performance, then you can buy more than before.
But Social Security benefits aren’t increasing because seniors are doing a really great job of retiring. They go up because of a formula built into the program that provides for cost of living adjustments (COLAs). So despite the fact that the increase in benefits is commonly referred to as an increase, it is not at all. It’s just an adjustment of the benefits to account for price increases.
The COLA will be calculated next year, like every year, based on year-over-year changes in the consumer price index for urban wage earners and white-collar workers (CPI-W). So if the CPI-W numbers show that prices have increased by 11.4%, then this amount will be added to your Social Security check.
The problem is that your payment will be bigger but will buy the same amount because the prices of everything will be higher by definition. And your other income sources will not have received automatic COLA due to rising inflation. If you use savings to pay for some of your expenses, it will buy 11.4% less than before, thanks to the fact that prices have soared.
Seniors need to understand that inflation is not going away
Retirees have been dealing with record high inflation for months. In fact, seniors got the highest COLA in 40 years in 2022. And that “increase” hasn’t done nearly enough to help them maintain their purchasing power this year, as inflation continued to climb after the benefit increase for 2022 was calculated.
Unfortunately, it probably won’t get better anytime soon. Even if prices don’t rise again any time soon, the cost of common items like gas and groceries would have to drop quite a bit to get back to where we were pre-pandemic. Unless and until that happens, retirees will have to cope with Social Security checks that don’t quite keep up, as well as savings that have lost a significant amount of value in real terms.
No one can predict when or if costs will fall again, but the Federal Reserve is predicting future rate hikes, so it’s pretty clear the US Central Bank experts don’t expect it to happen immediately. As a senior with a fixed income, it is important to realize what this means for you.
Instead of getting excited about a big Social Security hike, look for ways to cut further and make sure you have the right investments so you can limit how much your savings lose ground.