Kiss Your 11% Social Security Increase Goodbye

How much will Social Security increase in the near future? The cost-of-living adjustment (COLA), which attracted the most attention, was predicted to be close to 11%. Since 1981, there hasn’t been a COLA that large.

The high-minded forecasts, however, failed to take into account recent statistics that the US government revealed. You can kiss your 11% Social Security increase goodbye because the stats don’t lie.

a slowdown in inflation

The purpose of Social Security COLAs is to shield retiree income from being reduced by inflation. The annual increases have generally been moderate during the previous 40 years since inflation rates have been low. In three years, there hasn’t been any rise for Social Security recipients.

The astronomically high inflation rates shown so far this year have served as the foundation for all predictions of a significant Social Security rise for 2023. It seems complete logical that, as a result of rising costs, your COLA would be particularly high. There are a few crucial facts about the Social Security Administration’s (SSA) method for calculating COLAs, though.

First, the agency compares simply the average inflation rate between the third quarter of this year and the corresponding quarter last year. Second, rather than using the Consumer Price Index for All Urban Consumers (CPI-U), which is typically referenced in reports regarding inflation, the SSA employs the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

On September 13, 2022, the Bureau of Labor Statistics published the inflation figures for August. These numbers unequivocally demonstrate that inflation slightly abated, mostly as a result of decreasing gasoline prices.

Hard figures

 

Social Security recipients may receive an 8.7% COLA increase as long as inflation remains high.

 

As inflation continues to rise, Social Security recipients might receive an 8.7% COLA increase.

 

For the past two months, the CPI-W index that the SSA uses to determine COLAs has decreased, albeit very marginally. The CPI-W dropped by 0.2% in August, from 292.219 to 291.629, from July’s reading of 292.219.

To truly know what the Social Security increase will be, we must wait until the September inflation statistics are released. The release of such figures is delayed until mid-October. But it’s already quite obvious that an 11% COLA is extremely unlikely.

I won’t go into all the mathematical nuances. However, in order for the Social Security COLA to be 11%, the CPI-W would have to rise by around 6.3% in September compared to its level in August.

That may not appear to be a significant leap. However, the biggest one-month CPI-W increase since yearly Social Security COLAs went into force in 1975 was 1.5%. It took place in May 2022.

Is it conceivable that September’s inflation increase will be more than four times higher than the largest monthly increase in the previous 47 years? Sure. Is it likely? In no way.

Simply by looking around, we can notice that the costs of homes and gasoline, two of the main factors contributing to inflation, have decreased from earlier in the year. The probability of inflation continuing to fall is substantially higher than the probability of a significant increase.

Hello, kiss a big COLA.

The subsequent Social Security rise would be roughly 8.9% based on the Q3 average up to this point. The increase would be the biggest for Social Security beneficiaries in years. Only three years since 1975 have had larger COLAs.

You should probably say goodbye to your 11% Social Security raise. However, you’ll undoubtedly be able to say hello to a historically significant COLA soon.

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