For Social Security retirees, there’s good and bad news in the latest inflation report

If you’re a Social Security retiree, you’re probably watching inflation numbers like a hawk.

That’s because Social Security benefits increase each year according to the COLA, or cost-of-living adjustment. And last week, August inflation came in higher than expected. The Consumer Price Index for All Urban Consumers (CPI-U), the inflation economists most closely monitor, rose 8.3% year over year, down from 8.5% in July, but still higher than estimates by 8.1%. Also alarmingly, core inflation excluding food and energy remained high at 0.6% month over month and 6.3% year over year, showing that even prices for less volatile items such as clothing or shelter are still rising rapidly.

But Social Security’s annual COLA is based on another inflation measure, the CPI-W or the consumer price index for urban wage earners and white-collar workers. The CPI-W index rose an even higher 8.7% year-on-year in August.

For retirees, there is good news and bad news in the higher-than-expected inflation data. Here are the pros and cons for Social Security beneficiaries.

$100 bills with a Social Security card and a Treasury check.

Image source: Getty Images.

The good news: Social Security checks could rise by more than 8% by 2023

There is only one more inflation measure until we know how much the COLA Social Security increase in 2023 will be. September’s all-important inflation reading comes out on October 13, which means we’re just weeks away from knowing how much of the benefits Social Security recipients will get. However, since the Social Security COLA is based on the average increase in the CPI-W in the third quarter, we have a good idea of ​​how much it will be. After rising 8.7% in August and up 9.1% in July, retirees are on track for an 8.9% cost of living adjustment next year.

The good news, then, is that retirees will see their biggest increase in Social Security in about 40 years.

Since the average senior collects $1,661 a month in Social Security benefits, retirees will get an average COLA raise of $147 if the 8.9% estimate holds. That jump, which comes after last year’s 5.9% rise, is sure to help food, gas and rental bills.

The bad news: costs are still rising fast

The flip side of the higher benefit currency is that retirees are still seeing their basic spending rise rapidly. Essential categories like food were up 11.4% last year, and excluding energy and used vehicles, every line item in the August CPI report rose from July. For example, electricity costs have increased by 15.8% in the past year. Housing, the largest expense for both retirees and working-age Americans, rose 0.7% from the previous month, the fastest increase in that category in at least seven months.

The biggest expenditures of retirees, in order, are housing, transportation, health care, food and utilities, and almost all of those costs are still rising. Since the COLA hike won’t be implemented until 2023, retirees will have little choice but to absorb those higher costs in the meantime.

The other challenge with continued inflation is that it will motivate the Federal Reserve to continue raising interest rates aggressively, making a recession and continued stock market volatility more likely. While higher interest rates are actually good news for retirees collecting interest on bank deposits, it is a problem for those who rely on the stock market to grow their wealth.

What it means for retirees

Once you’ve started collecting Social Security, it’s hard to increase your benefits. In fact, the COLA is the most common reason for an increase in Social Security benefits after claiming, and unfortunately you have no control over the cost of living adjustment.

But there are things you can do to stretch your savings. Consider working on your budget, investing in dividend stocks that will give you extra income, or getting a side job, especially one that’s perfect for retirees.

If you’re counting on Social Security for your income, you’ll no doubt pay attention to the October 13 inflation report, but skyrocketing inflation should also be a wake-up call for retirees. With spending continuing to rise at the fastest rate in 40 years, Social Security shouldn’t be your only source of income when you retire.


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