Millions of retirees live on the fixed income that Social Security provides them. With little outside savings, the fact that Social Security makes annual cost-of-living adjustments is essential, because it allows the purchasing power of the checks that the program's recipients get to stay reasonably constant even in the face of high inflation.
In January, Social Security recipients will get an increase in the size of their monthly payments, as the COLA for 2023 takes effect. Below, we'll look at just how big a boost most retirees can expect to get from Social Security , and whether it'll be able to cover the higher costs that they've faced throughout much of 2022.
Image source: Getty Images.
What the typical American gets from Social Security
When you look at average benefits for Social Security over the years, you'll notice that they go up gradually. That's due to a couple of factors, including not only the COLA but also the fact that the benefit formula changes each year to incorporate changes in work history and other factors.
The problem, though, is that you can't count on those increases being consistent from year to year. As you'll see below, there've been some years in the past decade in which the rise in the monthly check was minimal at best. Yet in 2023, program participants can expect relatively huge gains, with the average amount going up $170 from where it was at the beginning of 2022.
|
Year |
Average Social Security Benefit for Retired Workers |
|---|---|
|
2013 |
$1,261 |
|
2014 |
$1,294 |
|
2015 |
$1,328 |
|
2016 |
$1,341 |
|
2017 |
$1,360 |
|
2018 |
$1,404 |
|
2019 |
$1,461 |
|
2020 |
$1,503 |
|
2021 |
$1,544 |
|
2022 |
$1,657 |
|
2023 |
$1,827 |
Data source: Social Security Administration.
The reason for this is pretty simple. Most of the 10.3% rise in the average from 2022 to 2023 comes from the 8.7% COLA that is slated to take effect at the beginning of next year. The rest of the increase is the result of ongoing increases in average earnings over time, which has the impact of incrementally adding to the benefit amounts for typical Americans.
Why the challenges seniors face are far from over
As nice as it is to have extra money in your pocket, no one's really celebrating over the increase in Social Security benefits. That's because people have had to pay the higher prices that led to that big COLA throughout the year in 2022, so the boost only helps seniors catch up going forward on expenses they had to cover themselves until now.
The numbers bear out exactly what seniors are facing right now. Using an experimental measure that focuses on what older Americans have to pay on a typical mix of goods and services, the Bureau of Labor Statistics said earlier this month that its CPI-E index rose 7.6% over the past 12 months. That's the highest rate of annual gains since the government agency started measuring this research-based measure back in 1982.
One silver lining, though, is that most seniors will get some good news on the Medicare front. A rare drop in monthly premiums for Medicare Part B medical coverage should add a few extra dollars to monthly checks.
Further pain ahead
Even with larger checks to help older Americans, many expect inflation to remain elevated into 2023, and that could put further pressure on seniors' wallets. Any further inflation between now and next year won't get incorporated into Social Security checks until 2024.
The fact that Social Security benefits go up over time is vital for the financial health of retirees. But rather than being a boondoggle for the nation's seniors, all the increases really do is help them try to keep up with the inexorable impact of inflation on purchasing power.
https://www.ssa.gov/policy/docs/chartbooks/fast_facts/2021/fast_facts21.html
