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Source: Social Security Administration FB

Social Security COLA Increase Could Exceed 8 Percent Next Year

Kathryn Underwood - Author
By

Jun. 13 2022, Published 11:33 a.m. ET

The Social Security Administration (SSA) offers a cost-of-living adjustment (COLA) each year based on the cost of goods. This increase gives senior citizens reliant on social security checks the same purchasing power even as inflation rises. Some groups are predicting how much the social security COLA increase will be in 2023.

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Due to soaring inflation in 2022, the CPI-W, the measure that COLA increases are based on, is very high. Estimates from the nonpartisan Senior Citizens League indicate that the COLA could be 8.6 percent in 2023, CNBC reports.

retiree
Source: Social Security Facebook

Nearly all older American adults receive some form of social security in retirement.

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Some lawmakers want to change the price index that determines annual COLA increases

Legislators, including senators Bernie Sanders and Elizabeth Warren, aim to change the measure used to determine annual cost of living increases. They, along with fellow Democrats, propose changes to social security, including changing the COLA measurement from the CPI-W to the CPI-E.

Currently, annual benefit increases are determined based on the consumer price index for urban wage earners and clerical workers, or CPI-W. Third-quarter data from the CPI-W is the basis of COLA increases, meaning costs in July, August, and September. This is a measure of urban workers’ spending.

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The CPI-E is the consumer price index for the elderly. One might assume that more accurately represents spending of senior citizens, though it's not a perfect indicator of those habits.

The Center for Retirement Research at Boston College noted in 2021 that the CPI-E gives more weight to healthcare costs, given that the elderly tend to spend more in that area. The center also said that the CPI-E has risen faster than the CPI-W for about 20 years, but that the gap is narrowing.

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Changing the measure used to determine the COLA increases to the elderly-focused spending index wouldn’t necessarily increase benefits to retirees. The Center for Retirement Research noted that using the CPI-E for 2022 would have resulted in a smaller 4.8 percent COLA rather than the 5.9 percent increase that beneficiaries saw.

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Joe Biden supports Social Security reform

The Social Security 2100 Act is a reintroduced House proposal that Democrats support. Connecticut representative John Larson, who brought forth the bill, heads the House Ways and Means subcommittee on social security. The proposed bill will combine some of Joe Biden’s proposals with subcommittee initiatives.

The goal of the act is to expand social security benefits and offer an extension to the date when the SSA’s trust funds might be depleted. In addition to boosting benefits, the proposal would make cost-of-living adjustments based on the CPI-E rather than the CPI-W.

Social security's COLA increased by 5.9 percent in 2022

In 2022, those who receive social security benefits and supplemental security income (SSI) benefits got a 5.9 percent raise on those payments. As CNBC noted, that was the highest increase in 40 years. Therefore, an increase in COLA of 8.6 percent in 2023 would certainly break that record again, though retirees could still struggle due to unusually high inflation.

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