Will Inflation Wipe Out Social Security COLA Update? – Though Social Security’s origins actually date back to the Great Depression, only since June 1975 have the general benefits been increased based on the increase in the cost of living, as measured by the Consumer Price Index. These are now known as “Cost-Of-Living-Adjustments,” or COLA, and the first was based on the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the second quarter of 1974 to the first quarter of 1975 – and provided an eight percent increase in benefits.
A COLA effective for December of the current year is equal to the percentage increase (if any) in the CPI-W from the average for the third quarter of the current year to the average for the third quarter of the last year in which a COLA became effective.
Each year, the COLA determines how much the benefits will increase – with the highest on record being in 1980, when it was a massive 14.3 percent, followed by 11.2 percent just a year later. However, some years have actually seen no increase at all, as noted in 2009 and 2010, as well as most recently in 2015.
Big COLA Increase Coming?
It was determined on October 12, 2021 that there would be a 5.9 percent COLA, while the next is currently scheduled for this coming October. What is notable is that it was the high inflation of the 1970s that led to the annual COLA – and previously it took a new act of Congress to increase any Social Security benefits.
This year’s high inflation, which soared to 8.5 percent and marked the 17th consecutive month in which inflation has outpaced the 2 percent target set by the Federal Reserve, remains a serious concern for many Americans – especially those on fixed incomes, and who depend on their Social Security benefits.
Given the severity of the current situation, it is largely expected that the Social Security retirement benefits will likely see a “monster increase” for next year – some say maybe as much as 11 percent.
It is currently on track to see an 8.9 percent COLA increase for 2023, easily topping the 5.9 percent set for this year – and moreover, would be the largest adjustment since the 11.2 percent COLA from way back in 1981. As a result, the typical recipient could receive an additional $1,900 next year.
“A high COLA will be eagerly anticipated to address an ongoing shortfall in benefits that Social Security beneficiaries are experiencing in 2022 as inflation runs higher than their 5.9% COLA,” Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League, told CBS News.
Social Security. Image Credit: Creative Commons.
It is still important to note that this is really the silver lining for what are truly gray clouds. It may seem as if retirees are receiving a massive raise, but it is only occurring because inflation hit a 40-year high in June, and so the COLA increase simply needs to be the largest in the last 40 years just to stay on pace.
Clearly, there is no free lunch, and some seniors may continue to go hungry if the record inflation isn’t resolved soon.
A Senior Editor for 1945, Peter Suciu is a Michigan-based writer who has contributed to more than four dozen magazines, newspapers, and websites with over 3,000 published pieces over a twenty-year career in journalism. He regularly writes about military hardware, firearms history, cybersecurity, and international affairs. Peter is also a Contributing Writer for Forbes. You can follow him on Twitter: @PeterSuciu.
