Surging inflation could lead to the biggest boost to monthly Social Security benefits since 1981.
The 2023 Social Security cost-of-living adjustment, or COLA, would be 10.8% if inflation continues at its current pace, according to a new prediction from the non-profit Committee for a Responsible Federal Budget (CRFB).
Each year in October, the Social Security Administration officially announces the following year’s COLA based on inflation trends. Since inflation has been lingering near four-decade highs, Social Security beneficiaries are expected to get their biggest raise in four decades as well.
A 10.8% COLA would be the highest rate in 42 years. The COLA for 2022 is 5.9%, which is also historically high. Currently, the average monthly Social Security benefit is $1,540, according to the latest figures from the Social Security Administration. A 10.8% COLA would increase that benefit to approximately $1,706 — a bump of about $166 a month.
The CRFB made several predictions based on what inflation could do in the coming months, before the Social Security officially calculates the 2023 COLA. If inflation were to slow down or completely stop for the remainder of the year, the COLA could be as low as 7.3%.
While some economists predict that the inflation rate may dip later this year in response to the Federal Reserve’s aggressive moves to tame it, it is very unlikely that inflation will halt entirely by the end of 2022.
Other recent predictions have been slightly more modest than the CRFB’s upper-bound estimate. For example, an official at the Social Security Administration estimated in June that the 2023 COLA would likely be around 8%. The non-profit Senior Citizens League’s latest COLA estimate is 8.6%.
The official COLA is based on inflation data from July, August and September of the previous year. Since no one knows yet what the inflation rates for these three months will be this year, estimates will continue to shift as we get closer to autumn.
Looming Social Security problems
Since 1975, the Social Security Administration has automatically set COLAs each year based on inflation. That way, when prices soar, people collecting Social Security benefits can keep up — at least in theory. However, experts note that beneficiaries still feel the sting of inflation, even with COLAs.
For example, people collecting Social Security benefits are currently making do with a 5.9% COLA, even though inflation this year has been far higher. A recent report from the Senior Citizens League says that the buying power of Social Security benefits has diminished 40% since 2000. In other words, inflation eats into beneficiaries’ budgets in real time, and COLAs — which are set annually — can’t keep up.
The Committee for a Responsible Federal Budget also notes another problem: insolvency. By 2035, the coffers from which the Social Security Administration pays for benefits are expected to run dry. According to the CRFB, if COLAs are at least 8.8% in 2023 and 3% in 2024, that insolvency date would come sooner, in 2033.
If or when the Social Security Administration becomes insolvent, benefits wouldn’t stop entirely, though they could be slashed down to approximately 80% of what they currently pay.
This article was updated on July 13 to correct an estimation of the average 2023 COLA payment with a 10.8% increase, not a 10% increase as previously calculated.