According to the Senior Citizens League (I know, they sound like a group of superheroes that can use laser vision to clip coupons from circulars at the speed of light), our favorite element of Social Security benefits, the Cost-of-Living-Adjustment or COLA, is anticipated to net its highest increase in 40 years!
At Innova Wealth Partners, we have always been adamant with our clients about making an informed decision when electing their Social Security benefits. When we decide to collect our benefit has a lifelong impact on how much we will receive due to two key factors; the early retirement reduction of benefits / delayed retirement increase of benefits, and the COLA that we will receive along the way.
In today’s blog we’ll focus on the upcoming 2023 Cost-of-Living-Adjustment, but it’s important to keep in mind that every year we delay our Social Security benefit past our “normal retirement age” up to age 70, we will receive an 8% increase to our monthly benefit. In the context of today’s blog, that means that for those that are able to delay their benefit, every increase in COLA will have an even bigger impact on their monthly check!
With Wednesday’s (Aug, 10th) July inflation data, we found that the inflation index used for Social Security benefits (CPI-W) rose 9.1% over the past 12 months. This is slightly higher than the increase of 8.5% to the consumer-price index (CPI) that we typically use to track inflation data. According to estimates from the Senior Citizens League, if inflation averages around its current level over the next two months, the 70 million or so of us receiving Social Security retirement and disability benefits could see an increase of 9.6% in 2023! This would increase the average monthly Social Security benefit amount of $1,656 by $159 per month. The Social Security Administration will announce the 2023 COLA once it receives the September inflation data in mid-October so there is still two months of inflation data to go. According to the Senior Citizens League, should CPI-W inflation run hotter than its recent average, the 2023 COLA could be 10.1%. A colder last two months could bring that 2023 COLA to 9.3%. In any case, retirees and those receiving Social Security disability benefits look to be in for some relief from the surging prices we’ve seen since the reopening of our economy.
So now you’re thinking; “This 9.1% increase looks like it’s coming out of thin air and money out of thin air is what got us in this inflation mess in the first place!” Well, that’s a perfectly logical train of thought, and only time will tell the effect of these upcoming COLA increases. A recent Wall Street Journal article reported that after the COVID-19 lockdown, the expected drawdown of the trust fund that helps support Social Security benefits would be exhausted by 2034 which was only one year earlier than the 2035 projection from April of 2020. After that point, benefit payments would be supported by payroll tax revenue. In the early 80’s we faced a similar depletion that was averted by the full retirement age changes that have in place now. While none of them are fun, options like an increase in the payroll tax cap, increased taxation, and delaying full retirement age for younger workers are all available to the Social Security Administration to prolong the trust fund that supports Social Security benefits.
We are about to see a generational increase to the benefits that our retirees and people with disabilities rely on to meet their needs. If you have any questions about how this upcoming COLA increase could impact you and your retirement, please reach out to your advisor at Innova Wealth Partners!
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