Social Security benefits will make a historic jump of 8.7% in 2023
Between inflation and rising fuel prices, it’s no secret that your dollar isn’t going as far as it used to. Today, the Social Security Administration released a figure illustrating how much consumer purchasing power has shrunk – and how it happened in record fashion.
The SSA announced that its annual cost of living adjustment, or COLA, is 8.7%. This is the biggest increase in the cost of living in more than 40 years. For most Social Security recipients, that adjustment translates to an average of $140 or more per month starting in January, according to an SSA news release.
“Health insurance premiums go down and Social Security benefits increase in 2023, which will give older people more peace of mind and respite,” Kilolo Kijakazi, Acting Commissioner of Social Security Administration, said in the press release.
What are COLAs and CPIs?
The Social Security Administration uses annual COLAs to increase, if necessary, monthly payments to its recipients to bring them into line with the actual costs of goods and services. Additionally, the administration has used COLAs since the 1970s to ensure Social Security and Supplemental Security Income payments keep pace. inflation.
To understand COLAs, it helps to know another acronym: CPI. The Overall Consumer Price Index is calculated monthly by the US Bureau of Labor Statistics and measures the average change in prices that consumers pay for goods and services such as food, fuel and medical care.
The Social Security Administration bases each cost-of-living adjustment on a specific index under the aegis of the CPI – the Consumer Price Index for urban wage and office workers. Simply put, the index shows how prices may have risen, and the COLA helps consumers offset those higher prices.
The BLS released the latest CPI report this morning ahead of the SSA announcement. The CPI report shows an 8.2% increase in the cost of consumer goods in the 12 months to September 2022.
Past COLA numbers compared to today
The last COLA, announced in December 2021, was 5.9%. The COLA announced today is 8.7%.
Since the SSA began issuing COLAs in 1975, the highest adjustments occurred in 1980 (14.3%) and 1981 (11.2%). Since then, adjustments have remained in the single digits.
One of the other highest COLAs was in 2008, during the Great Recession. The COLA that year was 5.8%.
How to cope with the rising cost of living
Whether or not you’re on Social Security, the latest COLA increase illustrates how strongly inflation affects purchasing power. Although there is no easy solution to inflation, there are steps you can take to keep as much money as possible in your pocket.
For example, prefer repay debts with high interest rates, such as payday loans.
And make sure you’re aware of your spending, says Travis Tracy, certified financial planner and founder of Fortitude Financial Planning in Durham, NC.
“It all comes down to cash flow,” Tracy says. “That’s what I work on with my clients: to sit down and see where everything goes.”
Review your bank statements to see past spending or download a budget app that automatically track your expenses.
If fuel is a major expense, consider using a gas app to find the cheapest fuel in your area. Tracy also recommends bundling weekly errands into one or two days to reduce fuel expenses.
If you have to decide which bills to cover, be sure to pay as little as possible for the services you need. Pick up the phone and call the companies behind the bills you pay, and politely ask to have your bills reduced, suspended, or deferred.
You can also call 211 or visit 211.org for assistance related to housing, food, health care and other essential services.
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