With analysts predicting the highest-ever Cost-Of-Living Adjustment (COLA) for Social Security recipients in October of this year, a response to forty-year high inflation, the long-anticipated moment that the Social Security Administration runs out of money could arrive sooner.
But what are the chances Social Security will really run out of money, and will inflation play a part? Let’s take a look.
2023’s COLA
With inflation running hot, accelerating to 9.1% in June this year, next year’s COLA could be the biggest in decades. While analysts cannot predict with dead certainty the exact figure that the Social Security Administration will decide by their October announcement, many analysts expect that it will be roughly a 10% increase.
David Certner, the director of legislative policy for government affairs at, predicted payments would rise anywhere between 8 and 10%.
“It’s not possible to be precise until we see the data for the next two months, but it’s probably safe to say at this point we can expect a COLA in the 8 to 10 percent range,” Certner said.
How Social Security Is Funded
Social Security is mostly paid for by the payroll tax. Both employers and employees pay 6.2% of their wages, up to $147,000 as of 2022, into the fund. Self-employed people pay 12.4%
Additional income is provided through interest earnings, which amounted to $70.1 billion in 2021, as well as taxation of OASDI benefits, which amounted to $37.6 billion in 2021.
Why and How Would the SSA Run Out Of Money?
Technically, as long as workers and employers continue paying their payroll taxes, the Social Security Agency has money. However, with payments increasing, it requires that employers and workers continue paying into the system. For decades, Social Security collected a large surplus, which reached $2.85 trillion by the end of 2021.
As we enter a period of economic recession, however, the SSA faces a real challenge. If unemployment goes up, its income goes down. Thankfully, however, despite the two consecutive quarters of negative economic growth, employment appears to be increasing. In July, payrolls increased by 528,000, and wage growth increased by 0.5% for the month and 5.2% over last year. If wages go up and employment remains high, the Social Security Administration could fend off a disaster.
According to the 2021 Social Security Trustees report, retirees will begin receiving reduced benefit by 2034 if Congress does not fix funding problems. The report reveals how Social Security will still exist by then, but that retirees will receive only 78% of what they should be entitled to.
To avoid a crisis, Alicia Munnell, the Director of the Center of Retirement Research at Boston College, suggests that Congress should pass new legislation that increases the payroll tax or increase the Social Security payroll tax income limit beyond $147,000. There is precedent for this, too. In 1983, the last time Social Security experienced a reserve deficit, Congress passed bipartisan legislation that increased the retirement age from 65 to 67 over a period of time and implemented an income tax on Social Security benefits.
Jack Buckby is a British author, counter-extremism researcher, and journalist based in New York. Reporting on the U.K., Europe, and the U.S., he works to analyze and understand left-wing and right-wing radicalization, and reports on Western governments’ approaches to the pressing issues of today. His books and research papers explore these themes and propose pragmatic solutions to our increasingly polarized society.
