Social Security check increases Will it be enough?

Inflationary pressure impacts the Social Security check

One of the most important news for retirees or for those thinking about retirement is that since 1982, the adjustment made in the Social Security check, called “COLA” (Cost-of-Living Adjustment), reached 8.7%.

For those who want to know the maximum amount that the COLA has reached, the following are presented from the first highest amount:

• In 1980 it reached 14.30%.
• Then in 1981 it reached 11.20%.
• And in 1979, where it scored 9.90%.

In the same way, in several years it has been zero, with which the benefit simply remained exactly the same for the following year.

Let’s see the following graph:

In the year 2022, each retiree on average was receiving $1,681; now by 2023 each retiree will receive about $1,827, which means they will get an additional $146 per month. In the case of couples who are receiving these benefits, they will go from $2,734 to $2,972.

If you wish, through the following link you can download directly from Social Security, a summary with all the details of this information: https://www.ssa.gov/news/press/factsheets/colafacts2023.pdf

For those people who are about to retire or are already retired and want to know what is the exact amount of money they are going to receive, always remember to check your Social Security account through the following address: https://www. ssa.gov/myaccount/

Fundamental questions

Some of you may be asking yourself the following two fundamental questions:

• When will I start receiving this new amount? As of January 2023, the more than 65 million Social Security beneficiaries will begin to receive this pension adjusted to 8.7%.
• If I still don’t want to retire, do I lose the benefit of this increase? The simple answer is “No”. Those who are of minimum retirement age need not worry; since, when they request it, the amount will already be adjusted to the COLA of each year.

How is the Social Security COLA (Cost-of-Living Adjustment) calculated?

Before explaining how the COLA is calculated, it is interesting to look at history, to learn that the main objective of this adjustment is to ensure that the purchasing power of this benefit is not eroded by inflation.

In 1975, this adjustment methodology began. Previously, this amount was only increased when Congress issued a special law to modify it.

Its calculation is done as follows:

1. The inflationary index called CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) is taken, which, as its name implies, measures the variation in prices for urban workers.
2. Not all the months of the year are taken, but the variation that the quarter of this year had versus the quarter of the previous year is compared, or what is the same, it is seen how much the number for the months of July, August and September 2021, versus those same months of this year 2022.
3. The variation obtained is the COLA for the next year, in this example for 2023.

Many experts on the subject have pointed out that it is not correct to use an index that changes prices for active workers when adjusting the amount that retirees will receive, under the premise that the expenses of those who are retired are different. to the workers; Therefore, they point out that the Consumer Price Index for the Elderly, or CPI-E, should be used.

What other changes will occur in the Social Security check in 2023 due to this new COLA?

For many of us, either because we are not retired or because we are Hispanic immigrants, we do not know what other modifications this change in the COLA generates. Below, we point out some of them:

1. Increase in the amount of each credit: In order to qualify for Social Security benefits, about 40 credits must be obtained, each year a person can accumulate about 4 credits and to earn each credit they must generate about $1,510 that year for their work in the year 2022 and by 2023 that amount rises to $1,640.
2. For those who are not retired and earn more than $160,201: you will not pay Social Security taxes on the amount that exceeds this amount in 2023, read carefully that we say for the amount that exceeds that amount, we are not saying that yes you earn less you will not pay. For the year 2022 the amount was $147,001.
3. Increased amount for disabled people: The average amount goes up in 2023 to $1,483 from $1,364 in 2022.

The big question will this COLA increase be enough?

To answer this question, we have to divide this approach into two fundamental parts:

1. According to a report published by The Montly Fool, where they analyze the way people who are retired consume versus what they are still working on and we can see the following points.

• According to the Bureau of Labor Statistics’ Consumer Price Index, the items that have had the greatest increase have been: Food with 10.9%, gasoline with an exorbitant figure of 44% and prices for public services or utilities with 19% .
• The five categories where money goes to retirees is precisely in: housing, transportation, health, food and public services; so we can see that the impact on retirees has been very strong
• Although for next year Medicare has announced that by 2023, it will lower the amount paid in Part B premiums, by 3% on average according to CNBC, people in retirement also spend Co -insurance and other expenses not covered.

2. These points confirm that the situation is not being easy at all for those who are already in their golden years, which for many may not be golden at all. Although it is true during the year 2022, the COLA or adjustment to the Social Security pension was 5.90%, it is also true that inflation, as we saw for each of the pensioners, is being much higher and they will have to finance the 2022 expense from their savings or investments until the increase in the 2023. The good thing is that many economists predict that the year 2023, although it will continue to be a complex year at an economic level, it is expected that inflation will begin to fall, which adds to the high consumption that we continue to see in the economy and the strength of the labor market.

Conclusions

In conclusion, as we have explained on other occasions, this information should serve as a lesson for those people who are working, to maximize their savings and investments, taking advantage of the tax benefits that individual retirement accounts such as 401K, IRA and Roth IRA, they can offer them in order to achieve their financial independence and be able to live their golden years to the fullest and without limitations.

Alonso Rodríguez Segarra

Founder & CEO Advise Financial

advise-financial.com

Alonso is a “CERTIFIED FINANCIAL PLANNER™” who is dedicated to increasing the Financial Well-being of nurses, physicians and successful immigrants in Florida and Texas. With more than 20 years of experience in the world of finance, always working for the best interest of his clients, under fiduciary criteria.