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Retirees who are feeling the pinch of higher prices, take heart: There could be a much bigger Social Security cost-of-living adjustment next year.
A preliminary estimate from The Senior Citizens League, a non-partisan senior group, finds that the 2023 cost-of-living adjustment, or COLA, could be as high as 7.6%, based on the latest Consumer Price Index data.
In comparison, the Social Security COLA for 2022 in January was 5.9%, the highest bump in 40 years.
Data released Thursday found that the Consumer Price Index for all Urban Consumers, also known as the CPI-U, notched a new 40-year high with an increase of 7.9% over the past 12 months.
The Social Security COLA is calculated based on another measure, the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.
The CPI-U is a more general index that tracks retail prices all urban consumers pay. The CPI-W, on the other hand, is a more specialized measure of the retail prices affecting urban hourly wage earners and clerical workers, according to the U.S. Bureau of Labor Statistics.
High oil prices were one factor in The Senior Citizen League’s current 7.6% estimate. The CPI-W puts a higher weight on food, clothing, transportation, and other goods and services compared to the CPI-U.
To be sure, the official COLA for next year will not be determined by the Social Security Administration until October. Consequently, there are many more months of data still to come.
Much of how high next year’s COLA actually turns out to be will depend on inflation.
The Federal Reserve is expected to raise interest rates, and thereby attempt to curb rising prices, this year.
That could push the COLA lower than the current estimate. Price moderation could provide relief for retirees and other seniors who are grappling with high consumer costs.
The Senior Citizens League has found that the 5.9% COLA for 2022 is already falling short for many retirees.
The average retiree benefit is currently around $1,564, according to The Senior Citizens League. But as of March, the benefit would need to be $1,698.50 to keep up with an 8.6% year over year increase in the CPI-W as of February. To date, there is a total $107.90 shortfall in benefits for the average retiree, based on The Senior Citizens League’s calculations.
To be sure, Social Security is not intended to replace all of a person’s income in retirement, said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League.
In order to adjust for inflation, retirees would likely have to draw down extra money from a pension or other investments to make up the difference for record high costs, she said.