Oct 12, 2022 - Economy & Business

Social Security payments set for biggest increase in decades

Illustration of a dollar sign with an arrow for a middle bar over a grid.

Illustration: Brendan Lynch/Axios

Thursday's consumer price index data is more important than most for millions of retirees and other Social Security recipients. That's because, under federal law, it will determine how large a cost-of-living adjustment (COLA) they will receive at the start of 2023.

Why it matters: The adjustments were created to ensure that Social Security beneficiaries don't see their monthly checks eaten away by inflation. But in the past year, that hasn't happened: Prices have risen at a blistering pace since the last COLA — a huge blow for recipients facing rising costs for food, medical care and other expenses.

  • In the era of low, stable inflation, COLA adjustments have been small. But now, with prices soaring, Social Security checks are set for the biggest jump since 1981.

Driving the news: On Thursday at 8:30am EDT, September inflation figures are expected to show a 0.2% rise and an 8.1% jump in prices over the last 12 months.

  • The Social Security Administration uses a formula to calculate the annual COLA. It averages consumer price index figures from the third quarter and measures that against the comparable figure from the prior year.
  • But the agency does not use the CPI figure that grabs the headlines each month. Rather, it uses a separate version of that index that focuses not on all consumers, but just those with clerical or wage-paying jobs.
  • That adjustment for 2023 will likely be 8.7%, according to estimates by The Senior Citizens League, an advocacy group. That means the average monthly Social Security check would rise by about $145, to $1,814 in January.

Yes, but: Retirees with a defined benefit pension plan in addition to Social Security frequently do not receive an inflation adjustment to that benefit. This means many retirees will have lost economic ground amid high inflation.

  • Moreover, those relying on investments like those in an individual retirement account to support themselves have likely experienced significant losses, given plunging stock and bond prices this year.
  • Also, while higher benefits may offer welcome relief to benefit recipients, they also leave the medium-term finances of the program worse off.

The bottom line: The CPI numbers always matter, but they will matter in a really concrete way Thursday.

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