Could retirees contribute to an even bigger wage increase next year?
Could retirees contribute to an even bigger wage increase next year?

Could retirees contribute to an even bigger wage increase next year?

Seniors on social security got their biggest raise in four decades this year. Retirees received a 5.9% increase in their Social Security check in 2022, resulting in larger monthly payments for millions.

While this seems overwhelming compared to recent years – in 2021, retirees only got a bolt of 1.3% – older Americans may be queuing for an even bigger increase next year. But it can actually be very bad news and is not something older people living on a fixed income should hope for.

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Seniors can get a big boost in social security next year

That Senior League has provided some details on the benefits that the organization believes retirees can see next year. This powerful advocacy group for older Americans reported that early data from the Bureau of Labor Statistics indicate that social security beneficiaries could queue for a 6.2% increase in 2023.

“The estimate is significant because COLA is based on the average CPI data for July, August and September,” said Mary Johnson, a social security policy analyst for The Senior Citizens League, in a press release. “With a third of the data needed to calculate COLA already in, it increasingly looks like COLA for 2022 will be the highest paid since 1983, when it was 7.4%.”

The Senior Citizens League made this estimate based on the fact that Social Security’s periodic cost of living adjustment is determined based on changes in prices measured by a specific BLS index.

COLAs are intended to help secure Social benefits keep pace with inflation instead of remaining stagnant and leaving seniors with less purchasing power as the price of goods and services rises. BLS data for one of the three key months used to calculate increases in social security show that inflation is close to record highs and therefore COLA is likely to be a significant upward adjustment to ensure that pensioners do not lose ground.

Why is a big pay rise bad news for seniors?

Getting 6.2% more money each month may sound good, but there are actually two reasons why these projections of a huge increase in benefits are really bad news for older Americans.

First of all, the fact that inflation is rising means that retirees are likely to get too small an increase in 2022. As prices have already risen beyond the 5.9% benefit increases seniors began receiving in January this year, retirees have already fallen behind. The checks they receive throughout the year will not buy as much as before the price of goods and services began to rise rapidly – even though each payment is higher than it was in 2021.

Second, the Senior Citizens League’s estimate suggests that the organization clearly believes that inflation will continue to be a problem going forward – otherwise they would project a slight increase in benefits. And inflation is hitting retirees really hard because it not only affects how far social security goes, but it also means that their retirement savings will not be worth that much in real terms.

Since retirees tend to invest conservatively, the returns they earn are less likely to be enough to maintain the value of their savings relative to rising prices. Retirees must also maintain a secure withdrawal rate to ensure that their money does not run out. So since the income they take from investment accounts does not go that far, they will have to either make budget cuts or take more money out and risk their future security.

Seniors should carefully review the BLS data over the next few months. If it continues to show that prices are rising fast, it will be important to start looking for spending cuts to make ASAP to preserve their assets – despite the fact that they will be heading for a major increase in 2023.

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